NEW DELHI: February seems to have turned out largely positive from India’s standpoint, with crude oil prices on track to recording the first monthly decline in half a year. The fall comes just weeks after global crude rates breached multi-year highs in January, rising 37 per cent in five months and exacerbating concerns that inflation would run rampant.
Through February, however, spot prices of brent crude have recorded a 4.43 per cent decline — falling from $69.65 per barrel on February 1 to $66.56 on February 28, as of 6.40 pm IST. While the latter half of the month saw some price gain after the global equity sell-off, the release of lower-than-expected industrial performance data from major Asian economies — primarily Japan and China — has dampened the recovery. The fact that US production of shale gas has not halted its headlong rally is also keeping prices at bay.
The development comes as a relief to Indian policymakers, since India depends on imports for over 80 per cent of its oil needs. With the government’s fiscal deficit targets already going for a toss during the current financial year and rising inflationary trends, economists had pointed out that high crude oil rates could cramp government spending, reduce room for rate cuts and drag down growth.
Economists like CARE Ratings’ Madan Sabnavis had stated earlier that a dollar increase in crude prices on a permanent basis would increase India’s import bill “by roughly Rs 10,000 crore” a year, and retail inflation as measured by the CPI could see a 0.35 per cent rise for every 10 per cent increase in crude rates.While those concerns still remain, the fear that crude rates would sustain their rise past the $70 mark and approach the $80 mark have abated somewhat.
According to reports from the American Petroleum Institute, US oil stockpiles rose by 933,000 barrels last week alone, even as production disruptions in Venezuela and Libya have propped up prices.
The net effect, analysts say, is that crude rates are likely to see-saw around the current range over the short to medium term, giving room for the Indian economy to script a recovery without crude rates playing spoilsport.