NEW DELHI: International crude oil prices slid towards the $40 barrel mark, amid growing worries about the health of the Chinese economy, and raised the prospects of a fresh round of cuts in kitchen and auto fuel prices in India in the coming weeks.
October crude fell over $1, or 2.5%, to $40.29 a barrel, having touched a six-and-a-half-year low of $40.11 a barrel earlier. Front-month US crude has fallen 33% over eight consecutive weeks of losses, the longest such losing streak since 1986.
The sharp slide in oil prices also spells good news for government finances since it reduces the outgo on subsidy and leaves more money for allocation to other welfare programmes. Lower prices also mean healthier margins for the corporate sector and the broader economy as it reduces price pressures. The impact on prices will create the headroom for the central bank to cut interest rates at a time when economic revival has been slow.
India imports nearly 80% of its crude requirement and lower shipments into the country also ease the pressure on the current account.
The takeaway for the government would be a lower crude import bill. Till July, the longest global oil glut was estimated to save India close to Rs 1.5 lakh crore, or roughly $24 billion, in 2015-16. To put that sum in perspective, it would be enough to cover the government’s school education, health, women and child development budgets and pay for the rural jobs scheme. This will keep swelling the longer the prices keep falling.
The oil ministry’s market tracker, Policy Planning and Analysis Cell, estimated the country’s oil import bill for this fiscal at $88.2 billion, or nearly 22% lower than $112.7 billion in 2014-15. Again, this will shrink further in line with falling crude prices.
While the supply side remains surplus, hopes of revival in demand in the immediate future remain distant in the absence of a strong and widespread indication of economic activities picking up in major economies.
This is one aspect that could shave quite a bit of the benefit India will get from low oil prices. Lower demand in western economies is bound to hit exports. The falling rupee in the backdrop of stronger dollar and jitters over devaluation of the Chinese currency is likely to add to woes.
Brent oil prices dropped $1.28, or 2.75%, to $45.33 a barrel, threatening to break below $45 a barrel for the first time since March 2009. For Indian consumers, the price of crude was estimated at $46.36 a barrel on August 20, signaling further moderation in domestic prices.