Impact Of Crude Oil Price On Indian Economy

Presented By Pradeep Tiwari Wasiurrehman Ravi Thakkar Trupal Vaghodiya

Why petroleum sector?

The Petroelum sector is one of the six core industries in India. The Indian oil and gas sector is of strategic importance and plays a predominantly pivotal role in influencing decisions in all other spheres of the economy.

What Crude Oil

Crude oil is a naturally-occurring substance found in certain rock formations in the earth. It is a dark, sticky liquid classified as a hydrocarbon. This means, it is a compound containing mainly carbon and hydrogen. Crude oil is highly flammable and can be burned to create energy. Petroleum= Petra (Rock) + Oleum (Oil) (Latin)

Crude Oil Production

India Kuwait UAE Mexico Canada China

Thousand Barrels Daily

Iran
US Saudi Arabia Russia 0 2000 4000 6000 8000 10000 12000

Source: BP Statistical Review of World Energy 2011

Crude Oil Consumption

Russia

Thousand Barrels Daily

India

Japan

China

US
0 5000 10000 15000 20000 25000

Source: BP Statistical Review of World Energy 2011

Structure of petroleum industry

Consist of two major activities Upstream and Down stream. UPSTREAM Exploration and Production of Crude Oil and Gas.

Companies like ONGC,OIL(oil india limited),ONGC Videsh Limited and Mangalore refinery.
Private players are also involved into it like CAIRN,RIL,NIKO etc.

Cont.
DOWNSTREAM Refining of crude oil into various products and marketing of these products. Companies involved into this are HPCL, IBP, GAIL, BPCL, GSPC, IOCL, RIL, etc.

80% of crude oil demand met through imports and balance 20% by indigenous production

Indias Oil Import

11% 34% 18%

5% 10% 22% Iran Saudi Arabia

Other
Africa

Western Hemisphere
Other Middle East Source: Global Trade Atlas

Energy Consumption In India

7%
24%

1% 42% 24%

Oil 2% Nuclear Combustible Renewables and Waste Other Renewables Coal Source: The International Energy Agency

Consumption of Major Petroleum Products

9%

8%
40%

36% 7%

LPG Diesel All other products

Kerosene Petrol

Source: Ministry of Petroleum Basic Statics

Factor affecting crude oil price

World oil demand World oil supply Weather conditions Government policy Political Conditions Futures Market

Subsidy
Indias subsidy bill zoomed to Rs 2.16 trillion or 2.5% of GDP . It was due to two reason: High Crude Oil prices Fertilizer subsidies, primarily on account of imported non-urea fertilizers. Last year budget government pegged curde oil price of brent at $90. This year they kept the same at $115. Next year government has reduced the budgeted amount for oil subsidy to Rs43580 crore.

Inflation
Crude oil price move up or down, inflation follows in the same direction. Crude oil price increases, its directly affects the rate inflation. When the prices went to high of more than $100/barrel in 2008, the inflation also went up to 12.27% which was highest for India in previous two decade.

Effects on Transportation
13% 7% 14%

61% 5%

Transport

Non-Energy

Other sector

Electricity and Heating

Industry

Source:- Report of the Working Group on Petroleum & Natural Gas Sector for the XI plan (2007-2012)

 The transport sector is clearly dominant in petroleum product consumption. Transport sector consumes 60% of total petroleum products. Road transport accounts for an even higher percentage of energy consumption.

Steps taken by the govt. and RBI

What Govt. did ? 1. Provided huge amount of subsidies to oil companies to keep them solvent. 2. This increased domestic prices of diesel and petrol. 3. Start looking for alternate energy options to prevent future oil shocks. What RBI did? Increase in CRR, Repo rates. (i.e. used monetary tools to calm down the heat)

Conclusion
To summarize the study When Oil prices Moves UP : 1.Inflation increases 2.Govt. spending on subsidy increases 3.Foreign currency reserves reduce 4.Our export becomes weaker 5.GDP is affected negatively 6.Share market crumbles 7.Investment decreases

Thank You