OIL PRICE RISE IN INDIA

CAUSE EFFECT & REMEDIES

By - Manoj
kumar
Roll No.
41
MBA(G)
Efficient and reliable energy supplies are a pre-
condition for accelerating the growth of the Indian
economy. While the energy needs of the country
especially oil and natural gas are going to increase at
a rapid rate in coming decades, whereas the
indigenously available energy resources are limited.
These resources may not be sufficient in the long run
to sustain the process of economic development. The
combined share of oil and natural gas constitute
around 25 per cent of total energy consumption in
2011-12. At the same time, the dependence on imports
of petroleum and petroleum products continues to be
around 80 per cent of total oil consumption in the
country.

Crude oil production during 2011-12 upto
December 2011 was about 28,699 Million Metric
Tons (MMT) and Natural Gas Production for the
same period was about 36.197 Billion Cubic
Meter (BCM). During the year 2011-2012, till
December 2011, production of petroleum
products from crude oil and natural gas was
147.204 MMT which is about 5 per cent
higher than that produced during the same
period in 2010-2011. Whereas during 2011-
2012, till December 2011, consumption of
petroleum products in terms of domestic
sale was 109.53 MMT which is 4 per cent
higher than that consumed during same
period in 2010-2011.

FACTOR RESPONSIBLE FOR
INFLUENCING PETROLEUM PRICES-:
Demand and supply imbalances
Taxes and duties on petroleum products
Market conditions
Production and consumption of petroleum
products
Imports of petroleum products
Subsidy on petroleum products
International prices of petroleum products
Cost of crude oil



ROLE OF THE ORGANIZATION OF THE
PETROLEUM EXPORTING COUNTRIES
(OPEC)

Regulation of rationing of quota of oil for various
countries.
Keeping the oil prices away from speculations of
other influencing factors.
Should control market volatility.
Establish proper market conditions to meet the
demand.
Strive for increasing the supply of oil.

HISTORICAL PERSPECTIVE OF
PETROLEUM PRICING


The history of oil pricing can be traced back to
the late 1920s when the private companies were
marketing imported products mainly kerosene.
No authority either the government or the
companies enforced any artificial control on the
prices.


HOW THE PETROL PRICE IS
CALCULATED

Petrol price is calculated on the basis of
worldwide supply.

Petrol price is calculated on the basis of
demand factors.
FOREIGN SUPPLIERS SELL CRUDE OIL TO OIL
MARKETING COMPANIES (OMCS) IN INDIA AT
BENCHMARK PRICES. DELIVERY PRICE AT THE
REFINERY AND BRENT CRUDES DAILY PRICE ARE
CONSIDERED TO CALCULATE ACTUAL COST OF PETROL
IN INDIA.
ONE BARREL OF CRUDE OIL CONTAINS ABOUT 160
LITRES OF OIL PRICED IN US DOLLARS. TO CALCULATE
PRICE, US DOLLARS ARE CONVERTED TO INDIAN
RUPEE AND THEN DIVIDED BY 160.

CONT......

WHY PETROL PRICE IS RISING IN
INDIA

Increasing number of private vehicles,
an overall domestic consumption of
petrol and petroleum product is on rise
in India.
Import of petrol is increasing in day by
day.
Increasing fiscal deficit.
Depreciating rupee as compare to
dollar.
AFFECT OF OIL PRICE
AT MICRO LEVEL --:
When oil prices spike, you can expect gasoline
prices to spike as well, and that affects the
costs faced by the vast majority of households
and businesses.
AT MACRO LEVEL --:
Oil price increases are generally thought to
increase inflation and reduce economic
growth.
REMEDIES FOR OIL PRICE HIKING

A possible option for both countries to reduce
this dependency is to shift to other suppliers of
oil and energy.
A second course of action for minimizing the
harms caused by high oil prices is to coordinate
spot purchases of crude oil from the
international market.
A third option is to enter into more forward
contracts with suppliers for future purchase of
crude oil at previously agreed prices.
CONCLUSION
The Integrated Energy Policy which was approved by
Cabinet in 2009 provided that fuels that are tradable (i.e.
imported or exported) would be priced in line with global
prices. The position regarding petroleum products,
where India is importing around 80 per cent of its
requirements, is that petrol prices are aligned with world
prices (and indeed bear an extra burden of taxation) but
diesel prices are at 20 per cent lower than they should
be if they are to be fully aligned. Kerosene prices are as
much as 70 per cent lower and LPG prices 50 per cent
lower. Thus, there is an urgent need to align domestic oil
and gas price to market price for sound development of
the sector. There is also a need to expand the supply of
bio-fuels, including bio-diesel to reduce the dependence
on imported oil.