Crude oil windfall to India’s rescue: How weak crude oil prices may give respite amid economic gloom

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February 13, 2020 6:50 PM

Prices are down and so is demand; and while this might not be good news for OPEC and its allies, India’s oil marketing companies and the country in general could benefit, according to experts.

Crude oil prices are down and so is demand; and while this might not be good news for OPEC and its allies, India could benefit.

As the Organisation of Petroleum Exporting Countries (OPEC) cut its crude oil demand outlook for 2020, the world is now looking at the oil cartel to see whether there will be a further cut in production by OPEC. After it first cut production in 2017 to support hike in prices, the rate of Crude Oil from OPEC basket surged to as high as $83 per barrel. However, a lot has changed since OPEC and its allies last decided to extend their cut in production. Prices are down and so is demand; and while this might not be good news for OPEC and its allies, India’s oil marketing companies (OMC) and the country in general could benefit, according to experts.

With falling demand as the world’s biggest importer of crude oil tries to tackle the deadly Coronavirus, prices have dropped down to as low as $54.16 per barrel for OPEC basket, which is made up of 14 crude oil exporting countries. The West Texas Intermediate crude oil price stood at $51.02 on Thursday. “Weaker oil demand would keep a lid on oil prices which is positive for OMCs in terms of pricing flexibility and maintaining margins,” analysts at Emkay Global Financial Services told Financial Express Online.

Oil marketing companies in India are both public sector and private companies that sell petrol, diesel and other petroleum products. These include, Indian Oil Corporation, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited, Reliance Industries Ltd and Essar Oil. As retail inflation, which includes oil prices, rose to 7.59 per cent in India a drop in crude oil prices could help bring some much-needed respite.

“There has been a mixed reaction from countries in OPEC and not all have met the production cut. Meanwhile US production has gone up 3 per cent in recent years OPEC cut production by 11 per cent,” an analyst at Geojit Financial Services told Financial Express Online. “Indian refineries might have inventory losses in the short-term because of the recent 20 per cent drop in crude oil prices but if prices stay at this level it will help the economy as inflation is rising and could help refiners cut down on production costs,” the analyst added. Geojit Financial Services see a 10 per cent further fall in prices if the impact of Coronavirus worsens.

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