India may get a USD 22 bn crude oil windfall

NEW DELHI: Russia’s decision to spurn its erstwhile OPEC allies in their renewed attempt to cut crude oil production may turn into a bonanza for India. The failure to form a consensus on supply cuts has sent Brent prices diving over 9 per cent to its lowest since June 2017, closing at $45.27 per barrel on Friday, and if prices remain at the $50 per barrel range for the rest of the year, India may save a whopping $22 billion in its import bill in FY 21.

The subsequent decrease in retail fuel rates, provided the Centre and state government choose to pass on the benefit, will also significantly reduce inflationary pressure. Retail inflation had spiked to a high of 7.6 per cent in January, pushed by rising fuel and food prices. “In a situation where the economy is in a downturn, this is good news,” said Dharmakirti Joshi, chief economist, Crisil.

With Russian energy minister Alexander Novak telling reporters that all production cut commitments agreed to by oil suppliers will become ineffective from April 1 this year, market analysts expect prices may fall even further until the advent of summer and rising temperatures. “It is assumed that the coronavirus may not survive high temperatures. So until April or May, travel and business activity will continue to fall and so will demand and prices. I believe speculatory forces may even see brent crude fall to $38-40 per barrel before recovering,” pointed out Gaurav Moda, Energy Industry lead, Accenture. The demand destruction perpetrated by the outbreak is likely to persist for the next few quarters.