Covid-depressed oil market to save India billions in import bill

The global health emergency posed by the spread of the novel coronavirus, is coming to country`s advantage, at least, in the oil sector.

India`s oil imports bill is expected to fall by a sharper 10 per cent in FY20 as the increasing spread of coronavirus has depressed the crude oil prices to below $50 a barrel now against a high of over $70 a barrel in September and again in January this year.

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According to the Oil Ministry`s Petroleum Planning and Analysis Cell (PPAC), the country`s oil imports are projected to fall to 225 million tonnes (mt) in FY 20 against 227 mt in FY19 while the import bill would reduce 6 per cent to $105 billion from $112 billion worth of imports in previous fiscal.

However, this calculation is based on average crude price of $64 a barrel for April-December of the current fiscal while the January-March imports has been worked on the basis of crude price of $66 a barrel. It is worth noting that crude oil prices slipped to below $60 and now below $50 a battle now from heights witnessed in first week of January. Analysts say that this would bring big savings on oil imports that generally surges in the later part of the financial year.

A one dollar fall in crude oil price results in reducing India`s import bill by almost Rs 2,900 crore while a rupee fall in value of currency against dollar results in increased spending by upto Rs 2,700 crore.

"The oil imports bill may well fall below $100 billion this year as coronavirus has further dented the oil market with further expected fall in demand. Even with higher production cuts by OPEC, the oil market is expected to email subdued for some more time. This could bring down the country`s oil purchase bill sharply," said an oil sector expert asking not to be named.

On a monthly purchase of oil worth $10 billion monthly, the additional savings for the months of January-March 2020 itself works out to about $7-8 billion. This would easily bring down the import bill to below $100 billion mark after a gap of almost one year.

While India imported crude oil worth $112 billion in FY 19, its import bill has transited substantially lower in the previous three financial years with oil import bill standing at mere $64 billion in FY16 when oil prices slipped on over supplies, especially with the entry of US shale oil.

Lower volume of crude processing by fuel refiners is also expected to have an impact on import bill.

For India, lower oil prices acts as big incentive as the country depends on imports to meet 86 per cent of its oil requirements. Lower import bill would also have positive impact on the country`s fiscal deficit that had already slipped from earlier targets in wake on higher government expenditure this year to curb falling GDP growth.

The dependency of imported crude (on consumption basis), on the other hand, has increased from 82.9 per cent in FY18 to 83.7 per cent in FY19, meaning the country is producing less oil and depending more on imports to meet domestic requirements. This dependency has consistently increased in all five years of the Modi government.

Crude production in India has stagnated around 35 mt for past decade. In FY19, domestic crude production has dropped to 34.2 mt from 35.7 mt in the previous year. Despite best efforts of the government, domestic oil production has not increased.

The government has now pinned hope on its new Hydrocarbon Exploration Licencing Policy (HELP) that institutes an open acreage policy to see more investment in country`s exploration and thereby increased production in coming years.