Oil near $70 a barrel: India could get some respite on the import bill, inflation may ease

As global crude oil prices hover around a three-year low of $70 a barrel, there could be some respite for the Indian economy, but only if prices remain low for a sustained period. This could provide some respite for India’s oil import bill as well as easing of inflationary pressures.

Oil Secretary Pankaj Jain had on Thursday said that petrol and diesel prices may be cut soon if global crude oil prices remain low for an extended period of time.  

Amidst lower demand and concerns over slower economic growth, Brent crude prices dipped below the $70 a barrel to $69.08 per barrel on September 10, which was the lowest since December 2021. On September 12, Brent crude prices were at close to $72 a dollar.

The average price of the Indian crude oil basket has also been trending downwards and has averaged $73.54 in September as against $89.44 in April this year. This is significantly lower than the Reserve Bank of India’s projection of average crude oil price at $85 per barrel this fiscal.

Analysts believe that prices may not remain this low for an extended period but believe that if it does it could have a positive impact on the domestic economy, especially in terms of the import bill.

“In FY24, of the total imports of $675 billion, India’s oil bill was $180 billion. The softening of prices will be helpful to control the import bill,” said Madan Sabnavis, chief economist, Bank of Baroda, adding that this should be a stabilising factor for the rupee which is holding good at just below the $84 level.

The impact on CPI inflation would depend a lot on how the benefits of lower crude oil play out, he said, adding that the products where prices are driven by market like aviation turbine fuel should move downwards. “However, fuel prices at the petrol pumps will depend on whether the centre and states decide to pass on the benefit. But from the point of view of CPI inflation, stabile prices or a downward movement are the two possibilities depending on government action,” he said.

Wholesale price inflation is however likely to see a downward trend while the Centre’s subsidy bill on cooking gas and fertilizers could also see some reduction.

Emkay Global Financial Services in a note said there could be a cut in retail prices of oil and diesel only toward Diwali and before the model code of conduct for Maharashtra Elections. This could be Rs 2 per litre each for petrol and diesel and possibly coupled with an equivalent increase in excise duty.

“We believe there are expectations of a retail price cut in auto-fuels for OMCs (IOCL, BPCL, and HPCL) amid the upcoming state elections. While we do not rule out the same, the model code of conduct for J&K and Haryana is on for a month,” it said, adding that during the next one month OMCs can earn supernormal marketing margins, covering LPG under-recoveries and inventory losses to a large extent. 

Prabhudas Lilladher however said in a note that it expects oil prices to rebound to $ 75- $ 80 per barrel in the near term as OPEC+ delays its planned rise in production. “Recent global developments leading to ample supplies amid weaker demand prospects have pushed Brent oil prices to lows of about $ 71 per barrel,” it said.