The combined effect of crude production cut by OPEC countries and pick-up in demand after lockdown eased in many countries has pushed up the price of Indian crude basket over the last one month. The price of Indian basket, which went down to $16.92 a barrel on April 27, has witnessed a spike of 93 per cent since then to $32.63. Brent price has seen a similar surge. It is currently hovering around $35 a barrel. WTI crude, which went below zero, is now at $34 a barrel.
The bullish sentiment in the oil market over the past few weeks is primarily because the OPEC leaders, including Saudi Arabia, UAE, and Kuwait, have pledged more supply cuts. Russia has also been forced to comply with the OPEC-plus agreement. The relaxed lockdown in the US, Europe, and India is helping in rekindling the demand for crude, at least for road transportation. India's crude oil processing in April slumped by 28.8 per cent from a year earlier, its biggest drop since 2003. Refiners processed about 14.75 million tonnes or 3.60 million barrels per day (bpd) of oil last month, government data showed. The lockdown and travel curbs aimed at stemming coronavirus spread has cut India's fuel demand by 45.8 per cent in April. Falling demand led Indian refiners and gas importers to declare force majeure on imports.
The low price of Indian crude basket is a respite for the government when the economy restarts after the lockdown. Throughout the last financial year, the average price of Indian basket kept coming down dramatically to $33.36 a barrel in March 2020 from $71 in April 2019. Thanks to falling crude prices, India's gross imports will fall by 25 per cent to $350 billion, said the SBI in its earlier research report.
India imports about 82 per cent of its required crude and it alone accounts for over 20 per cent of country's whole merchandise imports. The country's current account deficit could turn positive with the crude prices at its record low. This could help rupee get some cushion, while India's economic growth is expected to crash in this financial year.
The country imported Rs 7.8 lakh crore worth crude in 2018/19 compared to Rs 6.7 lakh crore imported in the first 11 months of 2019/20 (without March).
The fall is a breather for the government, which is facing lower than expected GST collections. Cheaper crude reduces India's foreign currency outflow and eases inflationary and fiscal pressure.