Global crude oil prices fell to a six-and-a-half year low in Monday morning trade on the back of Iran’s fresh commitment to boost production and higher drilling activity in the US coupled with renewed growth concerns in China, the second largest consumer of oil, impacting the global economy.

Brent crude for October settlement declined by more than 1.7 per cent to $44.3 a barrel on the London-based ICE futures exchange, the level last seen before March 2009. Rent, the benchmark for half the world’s oil was trading at a premium of over $5 over the US benchmark West Texas Intermediate (WTI).

Iran will expand output “at any cost” to defend market share, that nation’s oil minister Bijan Namdar Zanganeh said on Saturday, according to his ministry’s news website. The number of active US oil rigs increased for the seventh time in eight weeks, Baker Hughes rig count data showed.

The Indian basket of crude oil prices, which represents the average price of Oman and Dubai sour-grade and sweet Brent crude oil processed in Indian refineries (in the ratio of 72:28), stood at $45.21 a barrel on 21 august, the lowest in the past seven months since 26 January this year.

“The combined impact of the crude price slump and the depreciation in the rupee over the past few days would result in a Rs 100,500 crore impact on India’s import bill along with a Rs 9,000 crore impact on the government’s petroleum subsidy,” K Ravichandran, Senior Vice-President at research and ratings agency ICRA, told Business Standard.

At current levels of consumption and prices, every $1 decline in the crude rates eases India’s import bill by Rs 6,700 crore and pulls down the government’s subsidy bill by Rs 600 crore. The crude oil prices of Indian basket has averaged at $55.50 per barrel in the current financial year so far, ranging between a high of $66.54 per barrel on 6 may and the 21 August price of $45.21 per barrel. This is $15 per barrel less than the government’s budgeted crude oil price of $70 per barrel for the current fiscal.

The decline in crude oil prices is positive for Indian refiners — Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) — as their working-capital requirements would come down. Product prices and gross under-recoveries (GURs) would also come down.

IOC Chairman B Ashok had last week told Business Standard the current subdued crude price is likely to continue for the next couple of years, owing to higher US shale production, Organization of Petroleum Exporting Countries’ (OPEC’s) insistence on not cutting production, and possibility of more oil from Iran. For refiners, however, the gaisn could be limited by inventory losses. IOC had to suffer Rs 15,000 crore of inventory losses last financial year.

Lower underrecoveries for refiners would also mean reduced subsidy-sharing for upstream companies like Oil and Natural Gas Corp (ONGC). The OMCs’ underrecoveries came down from Rs 139,869 crore in 2013-14 to Rs 72,314 crore last financial year, thanks to a deregulation of the diesel price and rollout of the direct benefits transfer scheme for LPG (DBTL).

Source:- business-standard.com