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Meltdown in crude prices may save $17 bn, ASSOCHAM
01
Sep '08
India could save a whopping USD 17 billion in the crude oil import bill on account of the plummet in crude oil prices, currently hovering between USD 110-120 per barrel after nearly touching USD 150 per barrel, stated an ASSOCHAM Eco Pulse (AEP) Study.

The ASSOCHAM Study titled `Crude Economics' estimates that the oil import bill for the current fiscal would have soared to USD 125 billion had the crude oil prices remained at the level of USD 145 per barrel.

However, with the reversal in the direction of price movement, the import bill for crude oil would be restrained to USD 108 billion, assuming the prices average out USD 120 per barrel for the last three quarters of the fiscal 2008-09. In the fiscal 2007-08, the import bill for crude oil was USD 67.98 billion.

The AEP study also revealed that crude prices have shed almost 25 per cent since reaching their all time high of USD 147.27 per barrel.

Considering the government estimates of 5-6 per cent rise in the volumes of crude oil import bill to around 129 million tonnes this year, there would be a jump of 58 per cent in the crude oil import bill from fiscal 2007-08.

The softening crude oil prices may come as a respite to the burgeoning current account deficit growing at an alarming rate mainly due to the rising crude oil bill.

Trade deficit for the first quarter of the fiscal (April-June 2008) widened 42 per cent on account of a 50.2 per cent rise in the oil imports.

The oil import bill for Q1 '08 stood at a whopping USD 25.5 billion on top of USD 17 billion in the same quarter last fiscal.

“The economic forces at play in; shrinking demand and improving supply facilities may cool down crude oil prices further which would lead to a narrower than estimated current account deficit. It's a good positive sign for the economy”, said Mr. Sajjan Jindal, President, ASSOCHAM.

From 2006-07, the Indian crude oil import grew 9.11 per cent in volume terms and a staggering 40 per cent in dollar terms for the fiscal 2007-08.

This upsurge in the crude import bill was on account of a steep rise in the Indian basket price from USD 62.4 per barrel to USD 79.2/barrel.

According to the AEP study, oil prices, after reaching the all time high of USD 147.27 per barrel on July 11, have nosedived mainly on account of correction in demand, easing supply conditions and stronger US dollar.

The Oil demand in US, the biggest oil consumer has fallen sharply from 20.7 million barrels per day (mbpd) in 2007 to 19.88 mbpd in the first quarter of 2008.

The OECD-European countries have followed suit with a slowdown in demand for oil from 15.28 mbpd in 2007 to 15.24 mbpd in the first quarter of 2008.

On the supply side, Saudi Arabia, the largest oil producer has planned to raise production to 9.7 mbpd, its highest level in 27 years.

With minor hiccups in the supply condition because of the geopolitical tensions, the outlook remains bright, unless the oil cartel OPEC, controlling 78 per cent of the world oil reserves, decides to cut down production in order to put brakes at the declining crude prices.

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