THE CRUDE OIL BALM

India Today - - INSIDE - —M.G. Arun

Af­ter reach­ing a high of over $86 a bar­rel on Oc­to­ber 3, oil prices have swung to their low­est in the year. On Novem­ber 23, Brent crude prices fell to $58.80 a bar­rel, the low­est in a year. The im­me­di­ate rea­sons are higher shale oil and gas out­put in the US, higher crude pro­duc­tion in Saudi Ara­bia and a fall­ing de­mand for oil glob­ally, led by China. A World Bank re­port says oil prices are ex­pected to av­er­age around $74 a bar­rel next year, and in 2020 around $69 a bar­rel as US oil pro­duc­tion in­creases over time.

The cur­rent price dip has come as a re­lief to the Naren­dra Modi gov­ern­ment. His­toric price highs in the past two months had threat­ened to stoke in­fla­tion, since petrol and diesel have a com­bined weight of around 4.7 per cent in the Whole­sale Price In­dex. It also widened the Cur­rent Ac­count Deficit (CAD) and weak­ened the ru­pee. In Oc­to­ber, the Cen­tre cut fuel prices by Rs 1.50 a litre and asked oil mar­ket­ing firms to slash retail prices by an­other Re 1. There had been spec­u­la­tion of ris­ing oil prices up­set­ting fis­cal dis­ci­pline close to the gen­eral elec­tion.

A $1 re­duc­tion in crude prices will lower In­dia’s im­port bill by $1.6 bil­lion per year. In­dia, the world’s third largest con­sumer of oil, im­ported $108 bil­lion worth of crude in 2017-18. The lower im­port bill in the cur­rent fis­cal due to the crude price fall will see a soft­en­ing of the CAD. And with the ru­pee strength­en­ing and in­fla­tion sta­bil­is­ing, in­ter­est rates will soften. How­ever, states’ rev­enues could take a hit. “With the sud­den fall in crude oil prices, we do not fore­see a change in cen­tral rev­enues, but there could be a po­ten­tial de­cline in the rev­enues of states, given that the extra rev­enue earned—when crude prices had risen—will be negated to an ex­tent,” said a Care Rat­ings re­port. There is rea­son to cheer for now as prices fell to around Rs 80 for petrol in Mum­bai and Rs 72.56 for diesel on Novem­ber 26.

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