The stock markets, too, fell over concerns on the impact of the drone strike by the Houthi rebel group
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Benchmark crude oil prices rose to a seven-year high on Tuesday following the drone attack on fuel tankers at a Abu Dhabi National Oil Co. (Adnoc) facility in the UAE.
Brent crude futures rose $1.37, or 1.6%, to $87.85 a barrel, while US West Texas Intermediate (WTI) crude futures climbed $1.71, or 2%, to $85.53 a barrel, to touch record highs since October 2014.
The stock markets,too, fell over concerns on the impact of the drone strike by the Houthi rebel group, which killed three people, with the Sensex and Nifty declining 0.9% and 1.07% respectively.
With the rebels warning of more attacks on other facilities, the UAE said it reserved the right to strike back to these terrorist attacks.
State-owned Adnoc is the 12th largest oil company in the world by production.
On 1 December, Brent crude price was at $69 per barrel.
“Following the recent incident at Mussafah fuel depot, Adnoc has activated the necessary business continuity plans to ensure reliable, uninterrupted supply of products to its local and international customers, while ensuring the safety of its employees," said Adnoc Group in a tweet.
“We are working closely with the relevant authorities to determine the exact cause and a detailed investigation has commenced," added Adnoc.
In September 2019, Houthi rebels had attacked the Abqaiq and Khurais oil facilities of the world’s biggest oil producer, Saudi Arabian Oil Co. or Saudi Aramco disrupting around 5% of global oil supply.
Oil has been seeing a steady rise over the past month due to tight markets and concerns of a Russian invasion of Ukraine. The attack, analysts said, could push oil prices to the $100 per barrel mark. “This incident may not have a lasting impact on the oil price. However, the entire fossil fuel market is very tight as the demand bounce back continues to stay ahead of supply. It may be mid-2023 before US supply reached pre-pandemic levels of 12.3 mbpd and OPEC-plus is ramping up production to keep prices at elevated levels," said Debashish Mishra, partner, Deloitte Touche Tohmatsu.
Any spike in global crude prices will impact India’s oil import bill and trade deficit. According to industry analysts every $10 increase in crude prices raises fiscal deficit by 10 basis points. Higher cost of petroleum import not only worsens the current account deficit, disturbing the government’s fiscal math, but also stokes inflation.
Besides, macroeconomic uncertainty on account of fresh waves of covid-19 may impact economic growth and necessitate higher spending by the government on social schemes.