Petrol price falls below Rs 71; India to gain from Saudi, Russia price war
In Delhi, petrol prices dropped to Rs 70.59 a litre, the lowest since early July 2019, and diesel rate were cut to Rs 63.26, according to a price notification of state-owned firms.
By PTI
Petrol prices slipped below Rs 71-mark for the first time in eight months on Monday as India looks set to reap windfall from a price war among oil producers leading to international crude prices crashing by their biggest margin since the 1991 Gulf war.
International oil prices crashed by close to 31 per cent, the second-largest margin on record, after the disintegration of the OPEC+ alliance triggered an all-out price war between Saudi Arabia and Russia.
Brent futures plummeted to about USD 31 a barrel on Monday as Goldman Sachs warned prices could drop to near USD 20.
For India, which imports over 84 per cent of its oil needs, the slump would lead to lower import bill and a cut in retail prices but will harm already stressed upstream firms such as ONGC. Lower oil prices will also help economy from its 11-year low growth rate by way of reducing input cost for a lot of sectors.
In Delhi, petrol prices dropped to Rs 70.59 a litre, the lowest since early July 2019, and diesel rate were cut to Rs 63.26, according to a price notification of state-owned firms.
Fuel prices have been on the decline since Februray 27 on international trends. Petrol prices have in all fallen by Rs 1.42 a litre since then and diesel rates have dropped by Rs 1.44 per litre.
But the only dampener in the entire scheme of things is rupee which settled 23 paise down at 74.10 against the US dollar. A weaker rupee means India pays more for buying the same amount of commodity from overseas. It will also help lower inflation rate.
According to the oil ministry’s petroleum planning and analysis cell, India is likely to pay USD 105.58 billion or Rs 7.43 lakh crore on import of 225 million tonnes of crude oil in the fiscal year 2019-20, which ends this month. This compares to USD 111.9 billion (Rs 7.83 lakh crore) paid for import of 226.5 million tonnes of oil in 2018-19.
The 2019-20 projection is based on average price of USD 66 per barrel for the basket of crude oil India imports and average exchange rate of 71 to a US dollar.
Oil company officials said the import bill will fall in the next fiscal beginning April but an estimation cannot be made given the extreme volatility in the oil and currency market.
It certainly will translate into lower retail prices of petrol and diesel in the coming days as the current rates do not reflect the slump in international prices, they said.
Retail prices of the day are based on average price of benchmark international fuel of the preceeding fortnight. And the drop in prices to USD 31 will get reflected in retail prices over the next 7-10 days.
The moving average helps narrow the extreme volatility in the prices, they said.
On the negative side, lower oil prices mean they become more competitive versus renewable energy and delay switchover to cleaner fuels in fight against climate change.
Industry association Assocham said the fall in crude prices will help India recover as low prices of crude can be a demand driver while also taming the inflation.
However, Morgan Stanley believes that the drop in oil prices may not be good news for the economy as the gains will remain capped due to the overall weakness in the economy given the coronavirus-related health scare.
The decline in oil prices, it said, will negatively impact the capex outlook for oil related sectors as well as oil producing countries.
The fall in oil prices comes at a time when the global economy is already reeling under the impact of coronavirus, which has dented demand across sectors and economies.
Rating agency Icra said the plunge in crude oil prices is credit negative for Indian upstream companies as their realisations and cash accruals will decline. If the crude prices were to remain in the band of $30-40 per barrel, most of the Indian upstream companies could report losses, as the cost structure would remain rigid in the short-run.
Additionally, gas prices at various international gas hubs have declined, which would lead to lower domestic gas prices in the next fiscal. Accordingly, the realisations on gas sales would also decrease even as gas production remains either a break-even or a loss-making proposition for most fields for the upstream producers, notwithstanding some decline in oilfield services/equipment cost, Icra said.
International Energy Agency (IEA) on Monday cut global oil demand forecast for 2020 by 1.1 million barrels per day as coronavirus spread beyond China.
For the first time since 2009, demand is expected to fall year-on-year, by 90,000 barrels per day to 99.9 million barrels per day in 2020.
“While the situation remains fluid, we expect global oil demand to fall in 2020 – the first full-year decline in more than a decade – because of the deep contraction in China, which accounted for more than 80 per cent of global oil demand growth in 2019, and major disruptions to travel and trade,” it said.
Saudi Arabia slashed its oil prices over the weekend by most in at least 20 years and pledged to increase production after Russia refused to join the OPEC in a production cut as the spread of corona virus continues to slow the global economy and oil demand.
The kingdom plans to raise production to 10 million barrels per day next month from 9.7 million barrels per day currently and could even reach 12 million barrels per day amid — an unambiguous declaration of intent to flood the market with crude. Russia said its companies were free to pump as much as they could.
The kingdom plans to raise production to 10 million barrels per day next month from 9.7 million barrels per day currently and could even reach 12 million barrels per day amid — an unambiguous declaration of intent to flood the market with crude. Russia said its companies were free to pump as much as they could.
