What Does The Falling Crude Price Mean To India?

India has been one of the biggest net importers of crude oil in the last few decades. In 2014, the nation imported around 78% of its total crude oil requirements. Out of the total crude oil imports, around 65% belonged to the Oman- Dubai sour crude, followed by Brent and Bonny Light crude.

With the current fall in the global crude oil prices, India stands at a crucial juncture. The following sectors would determine as to what the falling crude price would mean to India.

1. Refining Sector:

The Indian Refining sector has done reasonably well in the last few years. Although India is a net importer of crude oil, it is a net exporter of refined products. The gross refining margins (GRMs) of most of the Indian refineries have been good in 2014. Out of the 22 Refineries (with a combined capacity of 215 MMTPA), Numaligarh Refinery, Reliance India Limited and Essar Oil Limited had the highest GRMs.

Most of the major Private Sector and Public Sector refineries are planning take major shutdowns in the second and third quarter of 2015. The falling oil and gas prices would not have any direct effect on the Indian Refining Sector, as most of the private refineries would have already ‘hedged’ its crude oil prices for the next 2-3 years. However, the public sector refineries can step up their productions and buy more crude while the prices keeps heading south. If the prices keep on falling, some of the major refinery shutdowns would be postponed to future dates.

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2. E&P Sector:

Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL) leads the indigenous crude oil production in India with a combined production of 14 Million Metric Ton out of the total 22.6 MMT produced in April- November 2014. The Indian E&P sector needs to step up its activities in the coming years if India needs to reduce its import dependency. With the current dip in the crude oil prices, the cost of subsidies that India pays can fall considerably. The total under –recoveries for the Indian Government due to fuel subsidization stood at 139869 crore (INR) in 2013-2014.

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3. Macro- Environmental factors:

Apart from the micro environmental factors, there are certain external factors that can play a crucial role during the falling crude prices. With the fall in crude prices, Russia and Venezuela have been hardly hit as their economies are heavily dependent on crude oil exports. These countries are losing billions of dollars in revenues.

This factor could have an indirect impact on India as it can affect the rising trade relations in the energy sector between India and Russia. After President Vladimir Putin’s visit to India recently, it was agreed that the Russian oil giant Rosneft would be supplying crude oil to India’s Essar Oil Limited for a 10 year contract period.

Looking at the holistic picture, we can infer that India has more to gain than lose from the current reduction in the global crude oil prices.

References/ Sources:

• Gross Refining Margins Retrieved January 7, 2015 from www.ppac.org.in
• Information on Prices, Taxes and Under- recoveries. Retrieved January 7, 2015 from www.ppac.org.in

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About the Author

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused Oil and Gas professional. Having started his career with Essar Oil Limited as a Graduate Engineer Trainee, he was involved in the Essar Oil Limited’s Refinery Expansion project in Vadinar, Gujarat, India.

He is an Author of a book ‘Oil- Past, present, future- An Indian Perspective’ which is a Single Point Reference Guide of Oil Industry (with Focus on India) for Students and Oil and Gas Professionals. Having travelled extensively to various Oil and gas locations around India, Gaurav has successfully dealt with Oil companies such as O.N.G.C; Oil India limited IOCL, BPCL, HPCL and others. He is currently based in Mumbai and works as a National Sales Manager in Sulzer Chemtech Tower Field Service India.

Follow Gaurav at Twitter at @Gaurav81184

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