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With Crude Falling, Some Day Fuel may Cost Less than Milk

Published: 22nd December 2015 02:47 AM  |   Last Updated: 22nd December 2015 02:47 AM   |  A+A-

CHENNAI: Buying fuel could soon be cheaper than milk, if estimates are anything to go by.

As oil producers, particularly West Asia, Iran and Russia, continue to pump unwanted fuel into the market amid the ongoing supply-glut, prices on Monday hit a 11-year-low at $36.05 per barrel (Rs 2,390 per barrel). One barrel equals about 117.35 litres. Simply put, a litre of crude oil costs Rs 20.34. But due to higher taxes like excise, customs and VAT, refined petrol and diesel retail at Rs 59.98 and Rs 46.09 per litre respectively.

According to projections by Goldman Sachs and CLSA, prices may touch $20 or Rs 1,320 per barrel or Rs 11.24 per litre. If it happens, including taxes, diesel and petrol will be cheaper than a litre of milk, which today costs about Rs 50.

Lower oil prices will benefit India — the fourth largest oil consumer. Nearly 80 per cent of all of our oil needs are imported, largely from West Asia and Africa, resulting in a massive import bill. As per government estimates, India will import 188.23 million tonnes (mt) of crude oil in FY16, marginally down from 189.43 mt in FY15.

Plunging oil prices will cut the country’s import bill by half at roughly $65 billion in FY16 from $113 billion in FY15, says research firm ICRA. The recent World Energy Outlook report by International Energy Agency, noted that each $1/bbl reduction translates to Rs 9,000 crore savings for India.

Crude prices are racing to the nadir as oil-producing OPEC nations stick to their decision to not cut production of 30 million barrels per day (bpd) currently, even as there’s an excess supply of 1.3 million bpd. Add to this, the anticipated supply from Iran, which recently lifted sanctions, and from the US, which removed its 40-year-old restriction to allow companies to ship overseas.

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