Oil has fallen to its lowest this year. Will your fuel bill fall too?

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Oil has fallen to its lowest this year, trading near $76 a barrel, a sharp decline from $129 in March. The supply uncertainty that gripped the market following the Russian invasion of Ukraine has faded while demand-related concerns amid global economic growth worries have gained sway. What does this mean for India?\n

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\nWhy has crude fallen?
\n1] Demand concerns\n
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• Sharply slowing global economy
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• Recessionary fears in the developed world
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• Further monetary tightening as inflation remains elevated
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\n2] Uncertain China outlook\n
Lifting of severe Covid restrictions should aid demand recovery, but there is concern infections may rise as a result\n

3] Fears over Russian supply issues have waned\n

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• Russian production is almost back to the pre-war level
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• $60 per barrel cap imposed by the West is seen as too high and unlikely to disrupt Russian oil exports
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\nDon’t expect pump prices to fall...\n
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• Domestic rates of petrol and diesel are linked to international prices of these fuels
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• But since Apr, domestic rates have been frozen as cos sold fuels at belowmarket rates and incurred big losses
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• Domestic cos will likely first recoup their losses before they pass on the benefits of a global price decline to consumers
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\n…But falling crude will have other advantages\n
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• It will shrink India’s oil import bill, narrow trade deficit
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• Demand for dollars to pay for oil will reduce
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• Lower energy prices will ease inflation
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\nWHAT IT MEANS:\n
This will strengthen the rupee, reduce pressure on RBI to hike interest rate\n\r\n
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