International oil prices plummeting after Greece rejected debt bailout terms on Sunday opens up interesting possibilities for the crude market as well as for India, experts opine.
The Indian basket of crude oil on the last trading day on Tuesday fell to $56 a barrel, as China's stock market-plunge and the Greek crisis revived the spectre of weaker economic growth that could impact oil demand.
Brent crude fell to $56.19 a barrel on Wednesday, having traded as low as $55.10 on Tuesday.
"Just as supply security is important to oil buyers, demand security is crucial for oil suppliers. Buying refining and marketing assets in big markets like India is the route to demand security for Russia, whose economy depends on petroleum exports," Mumbai-based foreign policy think tank Gateway House said in a report on Wednesday.
While more than 61 percent of Greeks voted against a proposal from international creditors that included pension cuts, tax increases and other measures, the downward pressure on prices also came from the supply side as prospects of an Iran nuclear agreement raised the possibility of more supply reaching the market.
"Iran would seek to increase its oil exports to the global market if a nuclear deal is reached and the Western sanctions are lifted," its oil minister Bijan Zangeneh said recently.
He has said Iran can restore its production of one million barrels per day fairly quickly, which supply can hit the market in less than six months.
This would add to output from the Organization of Petroleum Exporting Countries whose production levels are already at a three-year high.
China's stock markets have declined in recent weeks, which has sparked concerns about demand from the world's second-largest oil consumer.
From India's perspective, oil prices in the current context have dropped by more than 15 per cent.
The current context, moreover, has also lowered the probability of the US Federal Reserve hiking interest rates in September.
The combination of a delay in US rate rise and the fall in oil prices would put pressure on the Reserve Bank of India to lower its lending rate, as it had done early this year at the other time that oil prices were plunging.
Stable crude oil prices in the international markets would help India manage its macro-economy well, chief economic advisor Arvind Subramanian has said.
"I do not see oil prices going beyond $80-85 a barrel (about 160 litre), given the fundamental changes in the market. If oil prices remain steady even at that ($80-85) level, I think we can manage the economy well," Subramanian said at a lecture late last month at the Bangalore International Centre.
"Besides decline in our oil import bill, we have seen fundamental shifts in the international market, which has helped crude oil prices remain steady," he said.
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