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?
Why has crude fallen?
1] Demand concerns
Sharply slowing global economy
Recessionary fears in the developed world
Further monetary tightening as inflation remains elevated
2] Uncertain China outlook
Lifting of severe Covid restrictions should aid demand recovery, but there is concern infections may rise as a result
3] Fears over Russian supply issues have waned
Russian production is almost back to the pre-war level
$60 per barrel cap imposed by the West is seen as too high and unlikely to disrupt Russian oil exports
Don’t expect pump prices to fall…
Domestic rates of petrol and diesel are linked to international prices of these fuels
But since Apr, domestic rates have been frozen as cos sold fuels at belowmarket rates and incurred big losses
Domestic cos will likely first recoup their losses before they pass on the benefits of a global price decline to consumers
…But falling crude will have other advantages
It will shrink India’s oil import bill, narrow trade deficit
Demand for dollars to pay for oil will reduce
Lower energy prices will ease inflation
WHAT IT MEANS:
This will strengthen the rupee, reduce pressure on RBI to hike interest rate
