India, the third-largest crude oil consumer globally and which benefited due to fall in prices, believes it has to be prepared for market dynamics deciding the future of commodity prices.
India, the third-largest crude oil consumer globally and which benefited due to fall in prices, believes it has to be prepared for market dynamics deciding the future of commodity prices. The comment comes at a time when the Organization of the Petroleum Exporting Countries (OPEC), in the first such deal since 2008, agreed on Wednesday to effect modest oil output cuts. The countries met during International Energy Forum in Algiers.
“We have to accept the market dynamics. Producers have their own perspective and so has the consumers. We have to realise the new normal,” petroleum minister Dharmendra Pradhan told FE on Thursday.
India imports nearly 78-80% of crude oil and chunk of it is supplied by OPEC.
OPEC would reduce output to a range of 32.5-33.0 million barrels per day (bpd), while it estimates its current output at 33.24 million bpd. Analysts believe that the development could push up the crude oil prices, which could have a cascading effect on India’s economy. The decision on how much each country will produce would be taken at the next OPEC meeting in November.
Global benchmark Brent crude oil was down 60 cents a barrel at $48.09 on Thursday afternoon, after earlier climbing to a high of $49.09, strongest since September 9, said Reuters. Brent settled up $2.72 a barrel, or 5.9%, on Wednesday.
Oil imports always play a pivotal role in bridging India’s current account deficit as oil imports alone contribute over 20% of total imports. During the FY16, India has seen a fall in total aggregate imports, including oil and non-oil imports, by a 15.3% from $448 billion in FY15 to $380 billion in 2015-16. During this period, oil imports have fallen by 40% or about 81% of the total decline in imports. This is due to the decline in crude oil price from $85/barrel to $48/barrel during the same period.
India imported 202.9 million tonnes of crude oil in FY16, 7.11% higher than 189.43 million tonnes of imports in FY15. The energy demand, particularly for petroleum products are peaking up fast in the Asian nation. In August, the demand for petroleum products witnessed the quickest jump of 11% year-on-year, highest in the past five years. This growth is primarily led by diesel and petrol growing at 14% and 25%, respectively year-on-year.
The rising price of crude oil imports has a cascading impact on India’s fuel subsidy bill, current account deficit and the economy as a whole.
Finance minister Arun Jaitley has kept the budget estimate for petroleum subsidies at R26,947 crore in 2016-17 against revised estimate of R30,000 crore for 2015-16. Every $1/barrel rise in Indian Basket of crude oil prices, the under-recovery on LPG-domestic will increase by R7/cylinder and PDS kerosene by R0.40 /litre.