The prices of West Texas Intermediate (WTI), the best quality of crude oil in the world, fell to “minus” $40.32 a barrel in New York, US. Click here to know more
In this backdrop, here is a look at the impact this would have on the Indian oil market.
How will this impact India?
The Indian crude oil basket does not comprise WTI.
It only has Brent and oil from some of the Gulf countries.
So, technically, there is no direct impact on India.
However, oil is traded globally, and weakness in WTI gets reflected in the falling prices of the Indian basket as well.
What concerns does this pose?
India has wisely been using the sharp fall in both crude prices and domestic demand to accelerate the build-up of its strategic oil reserve.
The sliding oil prices would help significantly cut India’s energy import bill.
However, a prolonged demand drought would end up hurting the government’s tax revenues severely.
This is especially impactful at a time when the government badly needs every additional rupee it can garner.
Also, such low oil prices risk damaging the economies of producer countries including those in West Asia.
This would, in turn, hurt the inward remittances for India.
What options does India have?
There are two ways in which this lower price can help India.
The government can pass on the lower prices to consumers.
In this case, whenever the economic recovery starts in India, individual consumption will be boosted.
The other option is for the governments (both at the Centre and the states) to decide to levy higher taxes on oil.
This can work to boost the government revenues.
If it chooses to cut retail fuel prices by foregoing some excise revenue for a while, the wider economy could get the much-needed momentum.
Source: The Hindu, Indian Express
Quick Facts
Brent Crude
When it comes to physical oil, there are different grades.
The most popular traded grades are:
Brent North Sea Crude (commonly known as Brent Crude)
West Texas Intermediate (commonly known as WTI)
Brent refers to oil that is produced in the Brent oil fields and other sites in the North Sea.
Brent Crude's price is the benchmark for African, European, and Middle Eastern crude oil.
The pricing mechanism for Brent dictates the value of roughly two-thirds of the world's crude oil production.
