MUMBAI: The fall in price of crude oil this month — 22 per cent till date — and Friday’s plunge of Brent crude to $58.80 a barrel, come as a great comfort for India. From being pushed to the brink on retail fuel price front in September to fighting currency devaluation and Current Account Deficit (CAD) worries, there is cause for India to rejoice as rupee retracted from 74 to a dollar to 71. Retail fuel prices have also been coming down and these low prices should reflect soon as domestic prices follow the global product prices, in an average of 15 days.
“Markets have suddenly realised that demand is somewhat slowing down and on the supply side, things are looking brighter with production from Saudi Arabia, US and Russia going up. But, the key thing to watch out for would be the OPEC decision on December 6,” said K Ravichandran, senior vice-president, ICRA Ratings.
Expectations are that OPEC (Organisation of the Petroleum Exporting Countries) could demand one-million-barrels-a-day production cut or even deeper. “Barring that, prices would remain soft. I think they will come down strongly on production cuts, I don’t think price below $60/barrel would be acceptable,” said Ravichandran.
Indications on what the Saudi or Russia would want may be known even ahead of the OPEC meet, as global leaders converge at Buenos Aires next week for the G-20 summit. “Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower! (sic)” US president Donald Trump tweeted on Thursday. Not sure if Trump would carry this exuberance to G-20 next week with Western Texas Intermediate close to $50/b, but for now, like Trump thanking Saudi, Indian Prime Minister Narendra Modi has reason to thank Trump himself for taking the oil price burden off his shoulders.
As a rule of thumb, a $1 drop in Indian basket saves us approximately $850-900 million (over the course of a year). “Just a few weeks ago, with oil over $80, India’s current account deficit was headed to around 2.8% of GDP for 2018/19. Now the trajectory is 2.2% and 2019/20 will be better if the impact is a full year. Note that this is not a forecast but merely to illustrate the size of the swing,” tweeted Sanjeev Sanyal, principal economic adviser to the government.
Luckily for India, the predictions for 2019 have also come in lower. JP Morgan has cut its outlook for oil and estimates an average price of $73 a barrel for 2019, down from $83.50, CNBC reported on Friday. Average for April-October this year has been $74.4/b.