News Analysis

It’s a jackpot: At $35/barrel of crude, govt will save whopping $47 billion in import bill

Rajalakshmi Nirmal BL Research Bureau | Updated on March 09, 2020 Published on March 09, 2020

File photo   -  Reuters

The oil market is in a tailspin. Brent crude prices have cracked to $35/barrel today, down 23 per cent from Friday’s close, following Saudi Arabia starting a price war with Russia by dropping its selling prices sharply.

Goldman Sachs is now predicting the price to fall to $20/barrel if the war between OPEC members exacerbates and it fails to reach a deal on production cuts.

According to a Reuters report, Saudi Arabia is preparing to increase its production above the 10-million barrels per day mark; the current production is 9.7 million barrels per day and there is capacity to ramp it up to 12.5 million barrels per day.

Oil prices have been falling following the slump in demand due to the shutdown in China post the coronavirus outbreak.

The drop in oil prices, however, comes as good news for India that has been struggling to manage its current account deficit.

The cost of the Indian basket of crude, which averaged $71/barrel in April last year, dropped to $59.7/barrel in October and further to $51.03/barrel last week. The current drop in prices, if factored in, will see costs coming down further.

 

 

India’s crude oil imports have been rising by the year, adding to the government’s already stressed fiscal position.

In 2018-19, the country imported 226.498 million tonnes of crude oil. Assuming the same quantity of imports for 2020-21, at $50/barrel, the import bill would be $83 billion — lower than the $111.9-billion in 2018-19 and the estimated $105 billion for 2019-20. At the current price of $35/barrel, the import bill will be $58 billion, leading to a whopping $47-billion saving for the government compared to 2019-20.

Now, that’s a tidy sum for the government to make good its deficit in the current account.

Even if the current level of $35/barrel does not sustain, and it settles at $40-45/barrel, that will be good news. It will reduce prices at the fuel pump for consumers. The Reserve Bank of India may be seen willing to cut rates as inflation may slide.

Help cool down inflation

The drop in crude prices will help cool down the rising consumer price inflation. In January, the CPI was at 7.52 per cent (YoY), the highest since May 2014, according to data released by the Ministry of Statistics and Programme Implementation.

Fuel inflation in January was 3.58 per cent, up from 0.63 per cent in December. Now, with crude prices dropping sharply, it will lower the overall inflation, bringing respite to consumers.

 

Published on March 09, 2020

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.