Why is global oil price important for india?

 India’s energy consumption is expected to grow by 4.2% annually,

 India’s energy import bill of around $150 billion, expected to reach

$300 billion by 2030.

 India imports around 80% of its crude oil which makes India world’s
third-largest consumer of crude oil.

 India is vulnerable to price volatility.

Extreme volatility has marked crude oil prices, which reached a record $147
per barrel in July 2009. Countries such as India that are dependent on
imports to meet their oil needs are particularly vulnerable to price volatility
“Currently, India’s renewable energy sector is undergoing transformation
with a target of 175 GW of renewable energy capacity to be reached by 2022

What happened to oil prices 2 years back and why…. What impacts it had on india?

 Spurred by the negative effect of high oil prices on their economies, countries
such as the U.S. and Canada increased their efforts to produce oil.
 In the U.S., private companies began extracting oil from shale formations in
North Dakota using a process known as fracking.
Meanwhile, Canada went to work extracting from Alberta's oil sands, the
world's third-largest crude oil reserve. As a result of this local production, the
two North American countries were able to cut their oil imports sharply, putting
downward pressure on world prices.

Faced with a decision between letting prices continue to drop or ceding market
share by cutting production in an effort to send prices upward again, Saudi Arabia
kept its production stable, deciding that low oil prices offered more of a long-term
benefit than giving up market share. Because Saudi Arabia produces oil so cheaply
and holds the largest oil reserves in the world, it can withstand low oil prices for a
long time without any threat to its economy. In contrast, extraction methods such as
fracking are more expensive and therefore not profitable if oil prices fall too low. By
supporting low oil prices, Saudi Arabia hopes that countries such as the U.S. and
Canada will be forced to abandon their more costly production methods due to lack
of profitability.
 The fall in crude oil prices is understandably beneficial for oil importing
countries like India. Falling oil price supports improvement of economic
conditions of net oil importer like India.
India’s GDP touched $2 trillion in 2015, its highest achievement so far. Due to
falling oil prices India’s macro-economic indicators such as inflation, current
account deficit (CAD), and trade balance improved as government reduced
subsidies. On the back of contraction in the trade deficit, the CAD came down
to $22.1 billion, or 1.1 per cent of GDP from $26.8 billion, or 1.3 per cent of
GDP, in 2014-15. Decline in crude oil price has helped the government to
manage its finances better as it translates into lower subsidies on petroleum
products (LPG and kerosene), thereby; resulting in lower fiscal deficit.

What is happeneing to oil prices now and y?

1 dec 2016

following two consecutive years of low oil prices; the pressure on OPEC to act had
intensified
(OPEC) reached a deal among all 14 member countries to curtail oil production for
the first time since 2008, the oil-producing cartel announced from its headquarters in
Vienna

OPEC ministers confirmed it had secured a cut in its oil production from 33.8 million
barrels a day (b/d) to 32.5 million b/d in an effort to prop up prices.

Russia to cut oil output by 300,000 bpd by end-April

Deal extended for 9 more months till march 2018.

This led to rebalancing in the oil markets under way, the outlook for crude
oil
prices appears bright. In fact, “Brent crude has breached the crucial barrier
of $55 a barrel and is expected to tread further on the higher trajectory
towards levels of around $65-68 a barrel by year-end

Is OPEC Deal Compliance About To Crash

 The threat a Saudi-Iranian war is looking increasingly credible as tensions rise in the Middle East.
 The impact on the global economy would be severe. Oil could rise to $200 per barrel.
Impact on indian econnmy…… Policy .. CAD and inflation and exchange rate

Macro Factors:
Higher oil prices will weaken growth, drive up inflation and worsen the twin deficits.
 There is high possibility of government cutting on excise duty due to nearing of
elections by giving subsidies which will hit the revenue.
Of course, it will have a positive impact on inflation but on the other hand, if they do
not do that and allow the inflation to go up, then it is detrimental to the economy.

 The direct impact of higher crude prices will be felt on the Indian Rupee. For every
$1 a barrel rise in crude prices will lead to country’s imports bill rising by $1.33 bn. thereby
depreciating rupee significantly.
 This will also lead to shift in demand from equity to commodities like Gold and
further weakening of INR-USD.

Sectoral wise

Sectors to benefit

 The primary sector to benefit from the rising crude prices is Oil & Gas
sector ONGC & OIL India upstream companies . This sector has
underperformed ever since crude went down from $ 100 per barrel. With crude rising, due
to cascading effect on INR,
 IT companies will also stand to benefit.
 Pharma sector would also stand to benefit from weakening INR as major pharma
companies have their revenues coming from exports but rising

Sectors to get impacted

 The direct impact of rising crude prices will be felt on the Oil Marketing Companies
(OMCs) and Aviation sectors. .. Both OMCs and Aviation sectors have very limited
authority to proportionately pass on the cost to its customers due to higher crude prices.
For aviation firms, power and fuel costs account for 25 per cent of total
expenditure as well as revenues.
 The second line of companies, who use the derivatives of crude as raw materials,
such as those in sectors like paints, chemicals, plastics, etc. Additionally,
transportation costs are bound to increase across industries with rise in fuel
prices.
 Cement manufacturers are likely to feel the brunt of higher transportation
costs. Power, fuel and oil costs account for roughly 20 per cent of total operating
costs, or 15-16 per cent of net sales of cement companies.
 Other industries such as construction material and some other (non-oil)
commodities too will feel the heat. Power sector, too, is vulnerable to rising oil price
 , auto, as well as transportation and logistics players are expected to
see pressure on the demand as well as on margins