Crude Oil Price at Five years low

06 Jan 2014 (Transcription of AIR Money Talk)

Participants: Ranjith Mehta, Director, CCI and Adithi Fadnaid, Business standard

Oil price across the world falling- $63.16 – Dec 2014 and it may touched as low as $50 few days back; in the Beginning of FY 1^st April 2014 – price was $104.56; price fall close to 40%-50%; profound implication for India; Morgan Stanley – predicted – by Q2 of 2015 – price could touch $43; 80% crude oil consumption by India is of imported; Lower price help government to reduce subsidy; Cost of import may come down; Investment may drop– Sovereign wealth fund located in the oil rich Abu Dhabi, Kuwait; Trend in oil?

Negative & Positive effect in Indian Economy – May reduce the CAD– as being 4^th largest consumer of Oil – reduce import cost – reduce cost of production – increase the production – create more jobs – better growth – spare money to tackle Fiscal deficit – investment in Infrastructure ($1Tr Cr required in 12^th FYP) – concern also there - Indian origin countries have stake in Gulf Countries; more than concern, it is time to cheers;

Despite oil prices going down, there is no committed reduction in retail oil prices; Govt. raised the Excise duty on petrol & diesel twice in the recent past – reduce the path through to consumer price- why it not benefited the consumer?

Holistic view is required – oil prices are right now deregulated – if they are market driven oil prices – it might have come down to Rs.40 also – reduction of 12% in the past few months; Raised Excise duty- 15k Cr extra money through this – it is to bridge the fund shortage (Fiscal Deficit) – New Govt. focus more on the Infrastructure – to ensure Economic growth beyond 6% in the coming year; else 

there could have be sharp reduction in the Retail price;

Govt. budgeted almost Rs.63k Cr as oil subsidy – but oil subsidy is huge drain on the Economy – prevent the Govt. from Fiscal consolidation- but oil subsidy that had not been paid for during the course of last financial year is Rs. 35k Cr – this is been paid in this year budget along dramatic fall in the oil price not going to affect the fiscal deficit?

International crude price – might fall or may raise also – Govt. futuristic approach – Primary Agenda is Development – which demand better Infrastructure facility – Railway, Ports, Transit corridor and importantly Energy Security concern; if consider Over all things in a basket – the line will be clear;

If we look at export import deficit – the crisis which the oil exporting companies face – is alarming, when the consumer demand falls; if India exports goods/ services to the countries which have priced the oil at the price which is absolutely beyond the imagination – these countries face crisis in their own country, so their won’t be market for the India’s G &S;

Absolutely very right, these are the various concern globally and India as well. Domestically oil refinery companies facing set back may lose their capacities to avoid further loss. This can be threat esp. in the future time when global oil price raise again, this threat is further compounded by the lack of investment that government is able to attract in the oil sector in the given circumstances. These are few challenges that we are having due to the falling global oil prices.

Across the world – people have used this fall in global oil price – Indonesia reduced the subsidies, others like china reacted in other way; Whether India’s reaction is right one should we have slashed subsidy or should we have revised tax?

India – to great extend – reduce oil subsidy; Also Govt. – shifting its focus – towards Renewal Energy – Target of 1 Lakh Mw Solar Energy by 2020, earlier the target was 20k Mw by 2022; This might require an investment of $100 Billion in next five years – great initiative – one way to reduce our reliance on oil – it is must – to shift to clean & greener energy; Govt. steps are focused towards these measures, to tackle global warming & climate change issues;

In the developed world, current low level of oil price are been attribute to the rivalry between US & Canada on the one hand which are producing shale gas as an alternative to crude oil; Saudi & other countries stepping up production and reducing prices, so that shale gas does not become ever available alternative. Is this a sustainable competition?

Time will tell. But for the emerging economies – definitely proving to be good – this give room/ space to the government to look for various other options of sustainability & energy security – Govt. funds being diverted to Renewable Energy;

Where do you thing the slide in oil price will stop? Because Brent crude already below $57 per Barrel i.e. halved in the original price of $115 a barrel level in June 2014. Where it could it stop?

Morgan Stanley report, you started in the beginning, states it could go below $43.

This issue of Inflation is somewhat oil driven. Currently the Inflation is quite very low compared to the same time last year. How much it is because of low oil price?

We are importing more than 70% of oil for our consumption. Even $1 reduction in the global price, brings down the subsidy by $1 Billion as per Ministry of Petroleum. When we spend lesser money on this oil price, it contributes lot to the lower inflation level we observed in the past few months. It is very good at the Macro-economic factors – level CAD and Fiscal Deficit;