Can falling crude give much needed breather to Indian Economy

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Crude fall to bring significantly less oil import bill for India

With the current outbreak of the corona virus, oil consumption in major countries has declined due to reduced movement and quarantine protocols, specially in Virus hit countries like China and Italy. Oil-producing countries have limited their production by a great extent. This has resulted in the fall of crude oil prices globally. India, being one of the major oil importers, is reaping benefits from this movement.

Crude oil prices on a downward trend:

Crude oil prices have now dropped below USD 50 per barrel as on end of  February. India’s oil ministry had previously expected that oil import bill would decline by 6% in 2019-2020. A 6% drop in import bill would cost India around USD 105 Billion or Rs 7,43,900 crore. Oil import bill during 2018-2019 stood at USD 112 Billion or Rs 7,83,200 crore.

The earlier calculations were made, based on oil prices during April-December 2019 placed at USD 64 per barrel. While during January-March 2020, it was estimated to be around USD 66 a barrel. These calculations were made assuming the exchange rate was at Rs 71. However, since the start of 2020, oil prices have declined considerably. The outbreak of the corona virus in China has added more pressure to oil-producing countries. Oil prices went down from around USD 63.83 in January to below USD 50 a barrel. The annual oil import bill will now have to change with a huge fall in prices in January and February. A fall in crude oil prices by SINGLE US Dollar per barrel will bring down India’s import bill by approximately Rs 2,936 crore.

Crude Oil prices over the past years:

During 2015-2016, India’s oil import was reduced by half to USD 64 Billion. This was a result of fallen crude oil prices during 2015 collapsed. However, from 2016 onwards oil prices have continued to climb up. Up until December 2019, oil prices remained stable at around USD 67.31 per barrel. Oil prices in the coming months will not rise sharply due to the Virus effect. Prices are expected to  remain stable which is beneficial for the much needed revival of Indian economy.


Currently, India imports 85% of its oil requirements. Also on the other hand, fall in oil price means oil refiners are benefiting from lower fuel costs. A continuous fall in oil price will reflect as more profits to refiners. Refiners are also lowering the volume of crude processing in the last quarter of FY20. This also adds up to lower oil import bill for the country.

Decline in imports:

Crude import volume is expected to fall to at 225 million metric tonnes levels in FY20. In the previous fiscal, crude import was recorded at 226.5 million metric tonnes. During April-January of FY20 oil refineries processed 212.1 million metric tonnes of crude oil. In the same period of the previous financial year, refineries processed 214.6 million metric tonnes of crude oil. The fall in oil processing for the current fiscal is due to some refineries shutting down their operation for upgrades. Refineries are upgrading their plants to produce a much cleaner fuel for use in BS-VI vehicles. Bharat Stage (BS) VI is an emission standard set for combustion engine vehicles. In India, a shift towards BS-VI engine vehicle will start from April 1st 2020.

Besides crude oil prices, India is also benefiting from the fall in the price of Liquefied Natural Gas (LNG). LNG price has fallen below USD 3 mmBtU as Chinese importers are not accepting any new cargoes. Analysts expect the virus outbreak will affect oil and gas demand and consumption globally. Previous estimates kept oil demand for 2020 to grow at 0.86 million per barrel. However, after the outbreak oil demand went down to 0.70 million per barrel starting January.

China is the second-largest oil importer in the world. With most of its major cities under quarantine, transportation and industrial activity have gone down sharply. The Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia has agreed to cut oil production by 1 million barrels per day. The continuous decline in oil consumption has sent a red alert to oil-producing countries to control production. With no clear knowledge as to when the situation will stabilize, oil prices will remain on the downside.

Crude fall to bring smaller oil import bill for India

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