In what could come as a blessing in disguise for the much-beleaguered motorist in India, global crude prices fell massively by about 30 percent today – the biggest decline since the 1991 Gulf war. Following the huge slump in global demand arising out of the Coronavirus and also slowing economies worldwide, competition between oil producing countries may get stiffer in the coming weeks.
What it means for Indian motorists
India, which is the world's third largest oil consumer, imports about 84 percent of its needs. Industry estimates indicate that if crude prices rise by $1 per barrel, the net import bill will increase by Rs 3,029 crore and vice-versa. Further, if the exchange rate rises by a rupee to a dollar, the net import bill will increase by Rs 2,473 crore. This not only means a huge bonanza in terms of savings for Indian oil companies but also lower automotive fuel prices for motorists, as it would translate to much lesser petrol/diesel bills.
Petrol and diesel prices have been on a downward trend since the past couple of months after China slowed down in accepting crude following the emergence of Coronavirus. In Delhi today, petrol prices are retailing at Rs 70.63 per litre. In Mumbai and Kolkata, petrol costs Rs 76.27 and Rs 73.31 respectively. Likewise, retail diesel prices stand at Rs 63.30 in Delhi while it is Rs 66.22 and Rs 66.73 in Mumbai and Chennai a litre respectively.
Why have crude prices plummeted?
Oil major Saudi Arabia which leads the cartel of oil producing countries OPEC failed to get into an agreement with Russia over further curtailing of crude production to shore up the falling demand. OPEC and non-OPEC countries such as Russia have been in an understanding since the past three years regarding production levels in order to keep a check on customer prices.
The failing of talks is said to have riled up Saudi Arabia which cuts its crude prices leading to chaos in the global oil market as Brent crude price traded at $32.25, down by 28.76 percent during the morning. Further, reports suggest that Saudi Arabia may go in for unprecedented crude production from April. Analysts claim that the development is not likely to be taken lying down by Russia and even other OPEC and non-OPEC countries which may be compelled to increase their production, thereby leading to further oversupply of crude in the international market.
Saudi Arabia output down 0.6m b/d, but Russia up 0.3m b/d since CY2016
According to research analysts Vidyadhar Ginde and Mohit Mehra of ICICI Securities, Saudi Arabia has borne the brunt of output cuts by OPEC+. Saudi Arabia’s output has often been lower than agreed product cuts. Its oil production in CY2019 at 9.79m b/d is 0.63m b/d lower than its output of 10.42m b/d in CY16; OPEC+ output production deal started from CY2017. On the other hand, Russia’s CY2019 oil production at 11.25m b/d is 0.29m b/d higher than its CY16 output of 10.96m b/d. “Thus, Russia refusing to agree to further output cuts should not really bother Saudi Arabia,” the report said.