Crude oil prices fell more than $10 per barrel in a year and being the largest component in India’s overall imports, the fall in prices and demand can substantially bring down the country's import bill.
India’s trade balance is likely to improve as the ongoing global slowdown has pulled down oil prices in the international market. Crude oil prices fell more than $10 per barrel in a year and being the largest component in India’s overall imports, the fall in prices and demand can substantially bring down the country’s import bill. Decline in global economic indicators, US-China trade war and Brexit uncertainty are believed to have contributed to oil price declines and volatility. In 2014, oil prices dramatically fell down to $50 per barrel from over $100 per barrel. This steep fall in crude oil prices offered immense help to the then newly formed Narendra Modi-led government to maintain the deficit and inflation.
Brent crude oil spot prices averaged $59 per barrel in August, down $5 per barrel from July and $13 per barrel lower than the average from the same month last year. “I think oil could go to $30 or if not $20 a barrel which I do not think people are prepared for. Again if you are thinking in Indian terms, that is pretty constructive for India to have one of its largest import costs reduced so dramatically,” said Raoul Pal, CEO & Co-Founder, Real Vision Group in an interview to ET Now.
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Apart from the import bill, the Indian currency is also likely to improve with the falling oil prices in the international market. “Lower crude oil prices are able to support India’s trade balance and rupee. If the prices fall down further, the support for rupee and trade will increase,” Manoj Jain, Director-Commodities and Forex banking, India Nivesh, told Financial Express Online.
Organisation of the Petroleum Exporting Countries (OPEC) said in a report that the global oil demand in 2019 is expected to grow by 1.02 mb/d, which is 0.08 mb/d lower than last month’s projection. It has attributed to weaker than expected global economic scenario in the first half of the current year.
The U.S. Energy Information Administration (EIA) also said in its short-term energy outlook report that it expects oil demand to grow by only 0.9 million barrels per day in 2019. In July, the agency had said 2019 demand would grow by 1.1 mb/d, while at the start of the year, the EIA expected demand to grow by 1.5 mb/d this year.