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Oil has fallen to its lowest this year. Will your fuel bill fall too?

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

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