Oil has fallen to its lowest level this year, trading near $76 a barrel, a sharp drop from $129 in March. The supply uncertainty that gripped the market after the Russian invasion of Ukraine has faded, while demand-related concerns have taken over amid worries about global economic growth. What does this mean for India?
Why has crude oil fallen?
1]Worry about demand
Strong slowing global economy
Recession fears in the developed world
Further monetary tightening as inflation remains high
2]Uncertain outlook for China
Lifting tight Covid restrictions should help demand recovery, but there are concerns it could increase infections
3]Fears of Russian supply problems have subsided
Russian production is almost back to pre-war levels
$60 a barrel imposed by the West is seen as too high and unlikely to disrupt Russian oil exports
Don’t expect pump prices to drop…
The domestic rates of petrol and diesel are linked to the international prices of these fuels
But domestic rates have been frozen since April as fuels were sold below market price and large losses were incurred
Domestic cos are likely to recoup their losses before passing on the benefits of a global price drop to consumers
…But falling crude oil has other benefits
It will reduce India’s oil import bill and reduce the trade deficit
The demand for dollars to pay for oil will decrease
Lower energy prices will reduce inflation
WHAT IT MEANS:
This will strengthen the rupee and ease the pressure on RBI to raise rates
