India to get oil windfall again ahead of 2019 polls? Here’s the Saudi angle

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Updated: November 26, 2018 2:14:52 PM

The latest development is that in the last two months, Brent prices have slumped from a high of $86 a barrel to below $60 a barrel as the Organization of the Petroleum Exporting Countries (OPEC) decided to increase supplies.

The oil glut between 2014 and late 2016 created a huge oil windfall for India, which benefited the Narendra Modi government in terms of fuel tax.The oil glut between 2014 and late 2016 created a huge oil windfall for India, which benefited the Narendra Modi government in terms of fuel tax. (Image: Reuters)

The oil glut between 2014 and late 2016 created a huge oil windfall for India, which benefited the Narendra Modi government in terms of fuel tax. As oil prices slumped to as low as $27 a barrel, it gave the government room to hike excise duty on petrol and diesel. However, since November of last year, the oil prices have remained volatile and moved unexpectedly, leaving policymakers and central banks in a state of flux.

The Saudi Angle:

The latest development is that in the last two months, Brent prices have slumped from a high of $86 a barrel to below $60 a barrel as the Organization of the Petroleum Exporting Countries (OPEC) decided to increase supplies.

In fact, the daily oil output of Saudi Arabia has reportedly surpassed record 11 million barrels a day, which lead to further fall in oil prices.

“2019 will be a choppy year for the oil market as questions surrounding the prospect of a slowing global economy and a supply surplus are expected to increase,” Fitch Solution said in a statement. If oil prices fall further or stay at the current level, it would be advantage India.

How India will be benefitted:

Not only will it ease pressure on India’s current account deficit and trade deficit but it will also lead to lower fuel prices. Fall in fuel prices ahead of crucial Lok Sabha elections could be a gamechanger.

In fact, since October 4, when the government announced tax relief on fuel, petrol prices have fallen by nearly Rs 10. The central government had announced a tax cut of Rs 1.5 a litre on both petrol and diesel and asked oil companies to also absorb Re 1. Following the decision, many state governments also reduced value-added tax (VAT) on fuel by up to Rs 2.5 a litre.

Even the rupee surged for the eighth straight on Monday as global crude prices slipped below the $60 per barrel mark. The rupee climbed 39 paise to 70.30 against the US dollar in early trade on Monday.

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