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Global crude oil prices dip below $100; fuel set turn cheaper soon

Petrol prices could come down further as early as next week aided by plunging crude oil prices that touched $99.36 ( Rs 5,995) a barrel on Monday, the lowest in 14 months.

business Updated: Sep 09, 2014 00:37 IST
Anupama Airy
Anupama Airy
Hindustan Times

Petrol prices could come down further as early as next week aided by plunging crude oil prices that touched $99.36 ( Rs 5,995) a barrel on Monday, the lowest in 14 months.

The creeping increase in your monthly diesel bill may also end soon as the government may anytime soon announce de-regulation of diesel prices on the back of declining global oil prices.

Petrol prices have fallen by over Rs 5 a litre in August alone, and is currently selling at Rs 68.51 a litre in Delhi — the lowest since June last year. The next revision in petrol prices is expected on September 15.

Moreover, the losses of state-owned oil companies on diesel sales have got fully wiped out due to the fall in oil prices. If the trend continues, the government could consider a cut in the popular transport fuel before announcing complete deregulation of diesel price.

The fall in global oil prices below $100 a barrel on Monday could not have come at a more opportune time for the Indian economy, which is struggling to come out of its deepest slump in a quarter of a century.

India meets two-thirds of its energy need through imports, making oil prices a key factor in inflation.

Lower oil prices will also help the Narendra Modi-led BJP government deliver quickly on its electoral promises to cool inflation and revive the economy. The government is due to release consumer prices data for August on Friday.

In order to fulfil its poll pledge of ‘Achhe din aane wale hain’ (good days are ahead), the government needs to spin jobs for tens of millions of restive hopefuls, but elbow room has been extraordinarily tight for the Treasury so far, in the backdrop of high inflation and borrowing rates.

The softening of crude oil prices will help curtail fuel subsidies and help the government contain its fiscal deficit—a measure of the amount the government borrows to fund its expenses—at the budgeted level of 4.1% of GDP in 2014-15.

The fiscal deficit target was set on assumption of an average crude oil price of $105 a barrel. In 2013-14, the average imported crude oil price for India stood at $108.7 a barrel.

With every dollar decrease in oil prices, the government’s oil import bill comes down by Rs 4,000 crore. A $2-4 per barrel reduction in crude oil prices on an average would mean lowering of India’s oil import bill by Rs 8,000 crore to Rs 16,000 crore.

While low crude oil prices will boost the economy, it is also important that the rupee stays stable against the US dollar. Every time the rupee depreciates by one rupee against the US dollar, Rs 8,000 crore is added to the fuel subsidy bill. Fortunately, the rupee has been more or less stable in recent months.

The Centre releases subsidy to compensate state oil firms for selling diesel, kerosene and cooking gas at below cost.

India, the world’s fourth-largest oil consumer, buys around 190 million tonnes of crude oil a year from global markets, which costs the economy $145 billion a year, or more than a third of its total import bill. Naturally, any leeway on this front is a big boost to the entire economy.