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Rising rupee cushions oil shock

Crude oil prices are approaching a sky-high, but a strong rupee means it will have minimal impact on you, report Suman Layak & Lalatendu Mishra.

business Updated: Oct 17, 2007 01:12 IST

Crude oil prices are approaching a sky-high $88 (Rs 3,440) per barrel (158.9 litres), but a strong rupee means it will have minimal impact on you. About the only thing that'll get more expensive is your air ticket.

The all-time high, inflation-adjusted oil price is $90.46 (Rs 3,556), which happened when prices skyrocketed after the Iranian revolution in 1980. That price, too, is not far away.

However, economists are not worried. Firstly, the average price at which India sourced its crude on Monday was $78.88 (Rs 3,155) per barrel. It would have crossed $80 (Rs 3,144) on Tuesday. The crude that our companies import comprises 59.8 per cent cheaper grade crude from Dubai and Oman, while the rest is of the more expensive variety.

The Indian average for the year since April stands at $69.92 (Rs 2,748).

While the present cause for rise in prices is the possibility of Turkey sparking off an armed stand-off in the Middle East by pursuing Kurdish rebels in Iraq, the other reason is the depreciation of the dollar.

According to Nagrajan Narasimhan, head of research at Crisil, "Most oil-producing countries link their oil exports to the dollar. As the dollar falls, they keep raising the price of their oil." But a strong rupee negates this rise.

"The dollar fell to about Rs 39 from Rs 45 in quick time — a 13-per-cent-plus appreciation. It means we can buy more oil for the same rupees," said Narasimhan.

The rest is taken care of by the government through bonds issued to private sector oil marketing companies. All this means no imminent rise in prices of essentials due to expensive oil.

Airlines, though, may suffer. Kapil Kaul, head of Indian Subcontinent and Middle East, Centre for Asia Pacific Aviation, said: "The rising air turbine fuel cost, which is 70 per cent higher in India due to taxes, is a concern."