NEW DELHI: India is staring at an oily problem. Importing over 80 per cent of its oil requirement, the country is still heavily dependent on the vagaries of international oil and gas price trends to keep its expenditure in check. The last three years have seen a rare respite as prices crashed to below $50 per barrel, after years of $100 plus prices. The resurgence of rates in second half of 2017 however is spurring rising concerns.
Brent crude, forming the lion’s share of the crude basket, has already breached the $60 mark —racing from $44.82 on June 22, to $66.87 on December 29, 2017. This rise is already set to push up the country’s crude import bill for the current fiscal (2017-18) by as much as 15 per cent, according to sources.
A CARE Ratings report published late last year estimates that a dollar increase in prices on a permanent basis would increase the bill by roughly Rs 10,000 crore on an annual basis. “If prices do reign at above $60/barrel, then there would be pressure on the import bill by around $8-10 billion,” the report said.
As the new year dawns, the question is whether crude prices will remain at the same level, rise to breach the $70 mark or fall. The first two scenarios will cramp the government’s space to spend.During the April to November period of this fiscal year, fiscal deficit widened to Rs 6,12,105 crore, 112 per cent of the budgeted target of Rs 5.46 lakh crore for the full financial year ending March 2018.
However, some oil sector analysts do not believe that the current resurgence in prices will hold through 2018. KPMG’s head of oil & gas in India Gaurav Moda points out that the current rise in prices, likely to hold steady for the first three months of 2018, is being driven by OPEC’s active regulation of production and the increased demand from western markets due to winter needs.“But, we expect this to loosen up when supply (of oil) from Iraq, Libya and gas from Iran begin flowing in. These three countries are heavily pushed back at the moment due to geopolitical factors. Once this eases off, and demand falls after winter, we will see prices loosen. For the next 12 months, we expect prices to continue in the $50s, maybe the low $60s,” he said.