Lord ZeN
SENIOR MEMBER
- Jul 24, 2014
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NEW DELHI: Global oil prices breached the six-year low of $45 a barrel briefly on Tuesday but the last word is yet to be heard on how far crude would slide before bouncing back. While the low prices kept the good times rolling for emerging economies such as India, the slide is not without negatives.
Crude has fallen nearly 60% from $111 a barrel in June after Opec swing producer Saudi Arabia initiated a price war to retain market share against rising supplies from new players such as the US shale industry and Russia.
For India, the takeaway has been sharp reduction in pump prices of petrol and diesel. Petrol prices are now Rs 12.27 per litre lower than in August, while diesel prices are down Rs 8.46 a litre since October. Another round of cuts is expected on Janaury 15.
Low oil prices would reduce inflation and the oil import bill, which was $160 billion last year and is likely to be around $100-110 billion this year. It would also bring down subsidy on kerosene and cooking gas. All these would go a long way in keeping the deficit in check and lowering the need for raising taxes.
Oil prices are predicted to rebound in a year, even though they may not reach $100. That's when the government would be saddled with the job of managing the politically difficult task of raising pump prices.
Also, the low prices would make many new projects of oil producers such as ONGC and OIL unviable. To the extent that the supply glut is also seen as a result of a slowdown in the global economy, it also spells bad news for Indian exports and could pose a setback for the government's 'Make in India' plans.
Oil supply hasn't yet shrunk. Fields closed during internal strife came back into production earlier than expected in Libya and supplies from Iraq remained unaffected. Simultaneously, European and other major oil-consuming economies showed signs of cooling, creating a situation of over-supply in the market.
Saudi Arabia has consistently refused to heed appeals from Opec members Iran and Venezuela to arrest the decline in oil prices by cutting production. Saudi oil minister Ali al-Naimi was recently quoted by Middle East Economic Survey that Opec would not cut production whatever be the price.
The Shaybah oil field in Saudi Arabia.
While predicting oil prices is acknowledged as a mug's game, analysts are no longer sceptical of hitting the bottom at $30 or so a barrel. Such low prices may spread cheer among consumers, it could push countries dependent on oil revenues to the brink of economic collapse — with unthinkable consequences for the global economy.
That the markets are getting the jitters was evident on Tuesday, with the oil slide rattling financial markets and currencies worldwide in spite of stronger than expected Chinese oil import data.
Oil tumbles to $45 a barrel, bringing cheer to consumers for now - The Times of India
Crude has fallen nearly 60% from $111 a barrel in June after Opec swing producer Saudi Arabia initiated a price war to retain market share against rising supplies from new players such as the US shale industry and Russia.
For India, the takeaway has been sharp reduction in pump prices of petrol and diesel. Petrol prices are now Rs 12.27 per litre lower than in August, while diesel prices are down Rs 8.46 a litre since October. Another round of cuts is expected on Janaury 15.
Low oil prices would reduce inflation and the oil import bill, which was $160 billion last year and is likely to be around $100-110 billion this year. It would also bring down subsidy on kerosene and cooking gas. All these would go a long way in keeping the deficit in check and lowering the need for raising taxes.
Oil prices are predicted to rebound in a year, even though they may not reach $100. That's when the government would be saddled with the job of managing the politically difficult task of raising pump prices.
Also, the low prices would make many new projects of oil producers such as ONGC and OIL unviable. To the extent that the supply glut is also seen as a result of a slowdown in the global economy, it also spells bad news for Indian exports and could pose a setback for the government's 'Make in India' plans.
Oil supply hasn't yet shrunk. Fields closed during internal strife came back into production earlier than expected in Libya and supplies from Iraq remained unaffected. Simultaneously, European and other major oil-consuming economies showed signs of cooling, creating a situation of over-supply in the market.
Saudi Arabia has consistently refused to heed appeals from Opec members Iran and Venezuela to arrest the decline in oil prices by cutting production. Saudi oil minister Ali al-Naimi was recently quoted by Middle East Economic Survey that Opec would not cut production whatever be the price.
The Shaybah oil field in Saudi Arabia.
While predicting oil prices is acknowledged as a mug's game, analysts are no longer sceptical of hitting the bottom at $30 or so a barrel. Such low prices may spread cheer among consumers, it could push countries dependent on oil revenues to the brink of economic collapse — with unthinkable consequences for the global economy.
That the markets are getting the jitters was evident on Tuesday, with the oil slide rattling financial markets and currencies worldwide in spite of stronger than expected Chinese oil import data.
Oil tumbles to $45 a barrel, bringing cheer to consumers for now - The Times of India
