Possible rise in petrol, diesel prices? Here is how Venezuela crisis may impact oil prices in India

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Published: January 29, 2019 12:28:19 PM

According to the CARE Ratings, about $1.6 billion of additional annual burden could be faced by India, if crude oil price rise by a dollar on a permanent basis.

Considering India meets 80% of its oil requirement through imports, any rise in oil price is a cause of concern.

In the latest development, the US President Donald Trump-led administration imposed sanctions on Venezuela’s state oil company PDVSA, in order to curb crude oil exports by the OPEC member to the US and also to put pressure on socialist President Nicolas Maduro. The sanctions by the US government on Venezuela’s oil trade could lead to an increase in oil prices and the impact in India could be felt in terms of trade deficit, Indian basket of crude oil prices and exchange rate, according to a report by the CARE Ratings.

Venezuela is the fourth biggest crude supplier to India after Iraq, Saudi Arabia and Iran with 12% of its total oil imports coming from Venezuela between April-November 2018. Considering India meets 80% of its oil requirement through imports, any rise in oil price is a cause of concern.

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“The rise in crude oil prices will commensurate in an increase in petrol and diesel in the depending on how the oil markets react in the reduction in supply…The rise in crude oil prices is also to affect the fiscal breakeven oil price which the government keeps in mind while framing the budget,” it added. About $1.6 billion of additional annual burden could be faced by India, if crude oil price rise by a dollar on a permanent basis, CARE Ratings further said.

It may be noted that ever since the OPEC and allies agreed to cut production in December, crude oil prices have been recovering since the beginning of this year. Crude oil had entered the bear market last month and declined sharply from the prices prevailing during October 2018.

The fall was mainly on account of tight oil production in the US, grant of temporary waivers by the US on Iranian sanctions and sentiment hovering towards the slowdown in the global economy due to the ongoing trade wars between US and China.

“Going forward if the crises in Venezuela is not resolved by the time the waiver period of the Iranian sanctions is lifted it could prove as a double whammy on the oil prices raising it to $70 bbl levels by May 2019,” it added.

With 303.2 billion barrels of proven crude oil reserves, Venezuela has the world’s largest crude oil reserves but has not been able to capitalise on increasing its production due to lack of investments and the political situation in the country.  The Venezuelan economy is already in a low growth phase with 90% of the nation’s income depending on oil exports.

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