The oil price fall on Friday after the UK's vote to leave the European Union could be beneficial to India if sustained for a longer duration.
The oil price fall on Friday after the UK’s vote to leave the European Union could be beneficial to India if sustained for a longer duration. Though there are fears that rupee could depreciate further against the dollar, which could partly neutralise the gains from oil price decline, the net impact should still be positive for the Indian refining and marketing companies. This could also mean reduction in auto fuel prices that have seen a surge since April.
Crude oil prices dropped by more than 6% on Friday morning, while Brent crude was hovering about 4.85% or $2.47 down at $48.44 a barrel in the evening. Currently in the national capital, petrol costs Rs 65.65/litre, which is 6.1% higher against Rs 61.87 a litre on April 5.
The UK is a small producer of oil with an output of less than 1 million barrels per day. It does not export any crude to India. However, prices of the largest crude price benchmark, Brent are set in London. India buys a lot of crude on Brent basis especially from West Africa. As a result, any Brent price volatility might have consequences for India. Nevertheless, Brent prices are determined by the global oil market.
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“The UK is one of the largest world economy and any economic slowdown in Britain could send ripples across the whole world, impacting Asian economies as well as oil demand. Indeed, many UK personalities, who have favoured the Brexit, intend to do less business with the EU and more with developing countries, which could benefit India,” said Ehsan Ul-Haq, principal consultant at KBC based in London.
Kalpana Jain, partner at Deloitte in India, however, believes that fall in crude oil prices is expected to be a short-lived phenomenon as core oil fundamentals remain unchanged. “Though this oil prices have been range bound in the last three weeks above $45/barrel and a stronger demand and supply outlook has elevated prices in the last one month or so on the back of supply disruptions helping to curb inventory build-up in the US,” explained Jain.