Good news for India: Crude oil prices have dropped below $70 per barrel in the international market. This is the lowest level in the past nine months since December 2023. West Texas Intermediate (WTI) crude is trading at around $69.68 per barrel, while Brent crude oil is close to $73 per barrel. India imports over 80% of its crude oil.
Why Did Crude Oil Prices Fall?
The drop in crude oil prices is due to lower demand expectations, particularly because of economic slowdowns in China. Additionally, the reopening of oil exports from Libya, which had been shut down due to internal conflicts, is also contributing to the price decline. After a recent deal to appoint a new central bank governor in Libya, oil supply might resume. There are also speculations that OPEC countries might reconsider their production cuts, increasing the supply of crude oil and leading to lower prices.
Impact on Government Oil Companies
Government oil companies will benefit from this drop in crude oil prices as they will buy cheaper oil. However, it is uncertain whether this benefit will be passed on to consumers. In August 2024, government oil companies were making a profit of ₹9.3 per liter on petrol and ₹7.6 per liter on diesel. This profit could increase to ₹14 and ₹13 per liter, respectively. As a result, government oil companies are expected to see significant profits in the second quarter of the fiscal year 2024-25. Whether consumers will see a decrease in prices remains unclear.
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Potential Relief from Inflation
If the drop in crude oil prices continues for a long time, the government might face pressure to lower petrol and diesel prices. Especially, a decrease in diesel prices could make transportation cheaper, affecting the prices of food and other goods. This could help address high inflation rates, which are a major barrier to reducing interest rates. Lower petrol and diesel prices could help reduce inflation and potentially lead to lower interest rates.
