Crude oil prices have hit 11-year lows, with Goldman Sachs predicting they could go down to $20 a barrel. HT takes a look at why this has happened and what it means for the world and India in particular.
Why are international prices of crude at historic lows?
1.Oil prices have been suppressed since around October 2014, primarily because of sagging global demand and oversupply.
2.On Monday, brent crude touched $36.05 a barrel, the lowest since July 2004.
3.Prices will likely head further down in the coming days and weeks, with more US and Russian oil adding to the glut in the international markets. Some analysts predict oil prices will hit $20 a barrel.
4.In 2016, after the nuclear deal, Iranian oil too will start hitting global markets.
What low crude prices mean for the world...
1.Globally, consumers have enjoyed lower fuel prices.
2.Oil exploration companies have however seen margins squeezed, meaning, they will have to cut spending on exploration. Questions are now being raised about the merger of Royal Dutch Shell and the BG Group.
3.This slowdown has further meant that governments of oil producing countries have had to cut public spending as revenues have fallen.
… and are they really good for India?
1.Low crude prices mean India, which imports more than 80% of its oil and gas requirements, could get to save more than Rs. 2 lakh crore this year on import payments
2.While low crude prices have meant good cheer for the average consumer, as retail prices have been coming down, high excise has meant that the exchequer too has benefited, at the consumer’s cost
3.A depreciation in the rupee too has meant that the gains from the price fall have been nullified to a large extent.
4.Government owned explorer Ongc, which drills crude offshore, has been hit hard, and could be staring at losses
5.Oil marketing companies too have had to suffer significant inventory losses