Data shows that Indian baskets, or a blend of crude bought by Indian refiners, fell to $99.76 a barrel on July 14. The basket was below $100 on April 25 when it was at $99.17 a barrel.
The fall came as global prices fell 5.5% in the week as fears of a recession outweighed demand-supply mismatch concerns. But markets remain volatile, with benchmark Brent bouncing back above $100 on Friday as hopes of an early increase in output by Saudi Arabia and the UAE dwindled.
The Indian basket last fell below $100 to $99.17 a barrel on April 25, but has since traded above the century mark. On February 24, it broke the $100 mark to reach $100.71 a barrel for the first time since the Ukraine-Russia conflict broke out. If the prices stay below $100 for a while, it will ease the pressure on the bad rupee, which is hovering close to one. Historical low of 80 against the dollar. Lower prices will reduce dollar demand for oil imports. A 45 per cent rise in dollar demand from refiners is being seen as a major reason for the $8 billion fall in forex reserves in the week ended July 8.
The fall in crude oil prices, however, is not enough to erase losses on petrol and diesel, which brokers had pegged at Rs 12-15 per liter as pump prices remained stable amid crude oil and falling rupee – Pricing in both major elements. The record depreciation of the rupee has offset much of the relief from the fall in crude oil.
The government had announced an excise duty cut of Rs 8 on petrol and Rs 6 on diesel on May 21, when the Indian basket was at $109.55 per barrel and the rupee 73-74 against the dollar. After the fuel cut, the price of oil is as high as $85, while the rupee has come down to $80. Note,
On June 9, India’s crude oil price reached a decade high of $ 121.28 per barrel. This was the highest since March 9, 2012 when the Indian basket reached $125.13. This pushed the monthly average in June to $118.34 a barrel, last seen in April 2012 when the price averaged $118.64.
In 2021-22, oil companies spent $144 billion on imports of about 212 million tonnes (mt) of crude oil and 40 million tonnes of products. Higher oil prices weaken the rupee by depleting the forex kitty as more Indian currency is needed to buy every dollar. As the rupee strengthens, raw material imports become costlier.
This affects India Inc.’s profitability by raising the cost of production, leading to higher inflation as goods and services become more expensive and finance difficult for the common man.
Oil prices have been rising since October 2021, but rose after the Russia-Ukraine conflict on February 24, reaching a 14-year high of $139 a barrel on March 7.