India to gain as Saudi Arabia, Russia crossing swords in global oil market

India oil import bill is expected to fall by a sharper 10 per cent in FY20 as the increasing spread of Coronavirus and now the fallout of talks between OPEC and Russia has depressed the crude oil prices to about $30 a barrel now against a high of over $70 a barrel in September and again in January this year.

New Delhi:The bloodbath in the oil market has continued into the new week with crude oil prices slumping to around 30 per cent on Monday to just about $30 a barrel after Saudi Arabia shocked the market by launching a price war against one time ally Russia.

Late last week, talks between oil cartel Organization of Petroleum Exporting Countries (OEPC) and Russia collapsed as the two sides failed to agree on an output cut deal. This pushed Saudi Arabia, the world's largest oil producer, to cut its crude prices and announce increase production leading to a mayhem in an already over supplied oil market.

Crude is trading down 22 per cent to $32 a barrel. Brent crude, the global benchmark, has also plunged 22 per cent to $35 a barrel. Both oil contracts are on track for their worst day since 1991 Gulf War.

US oil prices crashed as much as 27 per cent to a four-year low of $30 a barrel.

The fear in the market now is that oil prices may crash further as Saudi Arabia is taking aggressive stance and is expected to flood the market with crude in a bid to recapture market share. Analysts have said that Saudi Arabia had slashed its April official selling prices by $6 to $8 a barrel in a bid to retake market share and heap pressure on Russia.

The global developments on oil bore well for India that imports 83 per cent of its domestic oil requirements. Analysts said that the country could save over $30-40 billion in its oil import bill if the current prices hold on for longer during 2020. This fiscals oil imports bill is also expected to fall from the gains on prices in the last two months of the financial year.

In a tweet on Sunday Kotak Mahindra Bank managing director and CEO Uday Kotak said: "Amidst turbulence and the virus, some good news - oil at $45/barrel. Recent $20 drop saves India $30 billion per annum. Also global interest rates have collapsed making money cheap. Let's leverage these for policy to boost growth."

India oil import bill is expected to fall by a sharper 10 per cent in FY20 as the increasing spread of Coronavirus and now the fallout of talks between OPEC and Russia has depressed the crude oil prices to about $30 a barrel now against a high of over $70 a barrel in September and again in January this year.

For FY21, the import bill could slip to half of current levels at $64 billion witnessed in FY16 when crude had fallen to $26 a barrel for some time.

According to oil ministry's Petroleum Planning and Analysis Cell (PPAC), country's oil imports is projected to fall to 225 million tonnes (mt) in FY20 against 227 mt in FY19 while the import bill would reduce 6 per cent to $105 billion from $112 billion worth of imports in previous fiscal.

However, this calculation is based on average crude price of $64 a barrel for April-December of current fiscal while the January-March import has been worked on the basis of crude price of $66 a barrel. It is worth noting that crude oil prices slipped to below $60 and now around $30 a barrel from highs witnessed in first week of January. Analysts say that this would bring big savings on oil imports that generally surge in the later part of the financial year.

If the price ramains around $30 for most parts of 2020, import bill could reach its all time low in many many years. The potential is it could fall to $64 billion in FY 21, the same as FY16 when crude prices slipped below $26 a barrel.

A one dollar fall in crude oil price results in reducing country's import bill by almost Rs 2,900 crore while a rupee fall in value of currency against dollar results in increased spending by upto rs 2,700 crore.

While India imported crude oil worth $112 billion in FY19, its import bill has transited substantially lower in the previous three financial years with oil import bill standing at mere $64 billion in FY16 when oil prices slipped on over supplies, especially with the entry of US shale oil.

Lower volume of crude processing by fuel refiners is also expected to have an impact on import bill.

Lower import bill would also have positive impact on country's fiscal deficit that had already slipped from earlier targets in the wake of higher government expenditure this year to curb falling GDP growth.

Despite best efforts of the government, domestic oil production has not increased. Government has now pinned hope on its new Hydrocarbon Exploration Licensing Policy (HELP) that institutes an open acreage policy to see more investment in country's exploration and thereby increased production in coming years.

The current crude oil prices are just marginally higher than the decadal low of $26 a barrel in early 2016 with analysts fearing that it may touch that level soon.

The failure of OPEC-Russia deal on production cuts has the genesis on growing prowess of the United States in oil export market. Russia has been dropping hints that the real target is the US shale oil producers as any production cuts by them helps US producers extra space in the market. OPEC led by Saudi Arabia wants production cuts to be expanded in an oversupplied market to prevent further erosion in oil prices that is also facing huge demand squeeze aggravated by the spread of Coronavirus.

The failure of talks has also resulted in a crash of Stock markets across the Gulf. Saudi Arabia's stock exchange, the Tadawul, was down 7.7 per cent in afternoon trading on Sunday. The Abu Dhabi index fell 5.8 per cent, Dubai's Financial Market General Index was down 7.47 per cent.

Shares of Saudi state oil giant Aramco traded below their original IPO price for the first time on Sunday, at 30.90 riyals ($8.24) in Riyadh compared to the listing price of 32 riyals in December. That's down 6.36 per cent on the day.

Petrol, diesel prices drop as Brent crude prices plunge

Petrol and diesel prices registered a drop across the country on Monday as global oil prices plummeted around 30 per cent after Saudi Arabia slashed prices and set plans for a dramatic increase in crude production in April.

In New Delhi, petrol price fell by 24 paise intra-day and stood at Rs 70.59 per litre. Diesel in the national capital was retailed at Rs 63.26 per litre on Monday as against Rs 63.51 on Sunday.

The retail price of petrol in Kolkata saw a drop of 23 paise to Rs 73.28 per litre. The diesel price fell by 25 paise in the eastern metropolitan city to retail at Rs 65.59 per litre.

In Mumbai, petrol price was Rs 76.29 per litre as against Rs 76.53 a day earlier. Diesel was retailed at Rs 66.24 per litre, 26 paise lower than on Sunday.

In Chennai, petrol was retailed at Rs 73.33 per litre, 25 paise lower than a day earlier. Diesel price saw a fall of 26 paise to retail at Rs 66.75 per litre in the southern metropolitan.

(IANS and ANI Report)