• CALL US : +91-422-4225333
  • WAPP : +91-9952412329

The Southern India Mills’ Association

Committed to Foster the Growth of the Textile Industry

Fall in global crude price may ease India’s import bill and inflation

Global oil prices fell by about a quarter in 40 days to $65 a barrel on Wednesday, promising to reduce India’s import bill and inflation. It is also likely to cool local fuel prices that crested several peaks and rob the Opposition of a key political plank against the Narendra Modi government ahead of a series of crucial state polls.
It has been a dramatic shift of sentiment in just about a month with traders switching from predicting $100 per barrel oil to fearing another supply glut amid dimming demand prospects.
US President Donald Trump’s insistence on lower oil prices, his Iran sanctions and a USChina trade war seem to have helped temper oil prices in recent times. A relentless rise in crude oil price that took it above $86 a barrel on October 3 was fuelled by fears that US sanctions on Iran may not allow many waivers, leaving Saudi and other producers struggling to fill the gap after significant Iran supply goes out of the market.
But Trump surprised many by liberally distributing waivers that allowed India and seven other countries to continue to import from Tehran. This, along with a surge in crude output put at three biggest producers—US, Russia, and China—set the stage for a sharp fall in prices. The US is now the largest producer of crude oil.
A protracted US-China trade war is also seen as negative for oil demand. Car sales in China as well as India have slowed this year, hurting fuel demand. Trump’s pressure on Saudis to avoid production cuts has further pushed the price slump. It is unclear how soon the Organization of Petroleum Exporting Countries (OPEC) and allies led by Russia would act to check the price slump and stop an oil glut from building. Saudi has said production cut of about 1million barrels a day from October levels is needed to deal with current imbalance.
Saudi Arabia will never let a glut build again in future, Saudi energy minister Khalid alFalih had said at an international conference in New Delhi in April. For India, lower oil prices mean lower import bill, less pressure on rupee, narrowing current account deficit lower subsidy payout, higher public resources for other welfare projects, lower risk of inflation and increased room for RBI to cut interest rate. If current price trends were to continue,India’s oil import bill in 2018-19 would be lower than .`8,81,000 crore projected by the oil ministry based on an assumed crude price of $77.88 per barrel and an exchange rate of 72.22 per dollar.
Dollar rise in oil price alters the country’s import bill by Rs 6,158 crore. Variation in exchange rate by one rupee changes oil import by Rs 6,639 crore.
Local prices of petrol and diesel, published daily, factor in both international fuel rates as well as currency movements for the trailing fortnight. Petrol and diesel prices have fallen by Rs 5.4 and Rs 3.5 per litre, respectively since October 17 when the current fuel price decline trend started. The dramatic fall in international rates in the last few days will further bring down local fuel rates.
In Delhi, petrol was at Rs 77.4 and diesel Rs 72.19 per litre on Wednesday. Record fuel prices just about a month ago had given Opposition the opportunity to tap into public anger against the Modi government, which was forced to cut duties to placate consumers.