NEW DELHI: The widespread scaling down of industrial activity in China after the Coronavirus outbreak may be giving rise to panic in the global supply chain, but the gloom comes with a silver lining for India. The country that depends on imports for 80 per cent of its oil and gas needs, may get a reprieve in the form of sharply lower crude oil prices leading to lower inflation and cheaper borrowing costs.
The fall in demand from China, the world’s largest consumer of crude oil, has sent brent prices plunging over 21 per cent since January 6, going from $68.91 per barrel to just $54.42 per barrel on February 7. The development comes at an opportune time for the struggling Indian economy, since earlier subdued retail inflation trends have begun showing signs of gaining upward momentum over the past few months.
In fact, CPI-based inflation for December had come in above the RBI’s targeted upper limit of 6 per cent for the first time in several quarters, climbing to 7.35 per cent. A main contributor to rising inflation during the month had been a 13 per cent rise in crude oil prices following heightened geopolitical tensions in West Asia between Iran and the US.
The higher prices had resulted in retail rates of petrol and diesel rising sharply during the month, pushing up transportation and other related costs across segments. However, the outbreak and the dip in crude oil demand is expected to ease the pressure on retail prices. Retail fuel rates have started reflecting the fall, with petrol prices going from Rs 76 per litre in Delhi on January 11 to just Rs 72.68 per litre on February 7. Diesel prices have fallen from Rs 69.17 to Rs 65.68 respectively. Cheaper crude oil results in lower yields for Indian government bonds, making overseas borrowing cheaper for Indian firms and the government.
Citi cut its forecast for crude oil
Citi Group has cut its forecast for crude by a massive $15 per barrel, expecting prices to average around $54 per barrel over the first quarter of the year from its earlier forecast of $69