Why Are Crude Oil Prices so Important for India?

Why Are Crude Oil Prices so Important for India?

Investing.com  | Sep 17, 2019 17:35

Crude oil prices have shot up by about 13% this week from less than $54 to around $62 at the time of this writing. Brent Oil Futures prices have also shot up from $60 levels to $68 levels. This spurt happened due to attacks on two Saudi oil facilities, disrupting the global demand-supply balance of oil.

As a result of this spike, Nifty suffered from a steep fall of 1.7% in today’s trade, although some of the loss in Indian markets can also be attributed to the global situation, especially China. China’s industrial growth rate fell sharply to a 17-year low affected by a slump in its manufacturing sector. Clearly, the trade war with the US is impacting China here.

But why crude oil prices are so crucial for India? Crude oil has been the most valuable commodity that India Imports and accounts for more than 25% of India’s overall Imports. India meets more than 80% of its Oil needs through Imports. Any sudden increase in imports cost widens the Trade deficit numbers for India, which in turns impacts the Current Account Deficit (CAD). Widening of CAD could stoke inflationary pressures.

This is to remind you that RBI has already cut interest rates by 110 basis points this year, mainly due to slowing growth and benign inflation. Growing inflationary pressures due to a spike in oil prices could force RBI to tighten interest rates in its future meetings, which could be even more detrimental to India’s GDP growth. Another impact of higher crude prices is the depreciation of Rupee. The Rupee depreciated by more than 1% against Dollar (see USDINR) since yesterday and is trading at just below 72 levels.

This shows how much India depends on crude oil prices. Oil marketing companies stocks took a big hit today, with Bharat Petroleum (NS:BPCL), Hindustan Petroleum (NS:HPCL) and Indian Oil (NS:IOC) all steeply declining by more than 2.5%.


Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.

Your Thinking and analysis is 100% correct . Crude oil is very important commodity product and it's supply effect will face around the world ... Immediately take high priority action on its import and supply. cut out others subsidies .. for temporary basis .. Because no stand by option of Crude oil ....   ... (Read More)

Sep 17, 2019 15:32 GMT· Reply
Narendra Rajput
Narendra Rajput

reason for today's downfall of Indian market was geopolitical issues rase in world   ... (Read More)

Sep 17, 2019 12:53 GMT· Reply
gaurav pandit
gaurav pandit

Common sense   ... (Read More)

Sep 17, 2019 12:27 GMT· Reply
devendra patel
devendra patel

In July 2018, nifty made a new high of 11750, Crude was consistently above $ 70 during this spike in nifty and $ was also above 72 levels.  ... (Read More)

Sep 17, 2019 12:25 GMT· 1 · Reply
sj swaroop
sj swaroop

nice one sir  ... (Read More)

Sep 17, 2019 12:25 GMT· Reply
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 中文 香港 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes