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    Oil Price Fall

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    deepak
    The document summarizes the steep fall in global oil prices due to a supply glut caused by the price war between Saudi Arabia and Russia, exacerbated by the drop in demand due to the COVID-19 pandemic. Oil futures prices fell below zero for the first time in history. While lower oil prices will reduce India's energy import bill, prolonged low demand could severely hurt the government's tax revenues and damage producer economies, affecting remittances to India. The government should consider cutting retail fuel prices after the lockdown to boost the wider economy.

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    Oil Price Fall

    Uploaded by

    deepak
    30 views1 page
    The document summarizes the steep fall in global oil prices due to a supply glut caused by the price war between Saudi Arabia and Russia, exacerbated by the drop in demand due to the COVID-19 pandemic. Oil futures prices fell below zero for the first time in history. While lower oil prices will reduce India's energy import bill, prolonged low demand could severely hurt the government's tax revenues and damage producer economies, affecting remittances to India. The government should consider cutting retail fuel prices after the lockdown to boost the wider economy.

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    The document summarizes the steep fall in global oil prices due to a supply glut caused by the price war between Saudi Arabia and Russia, exacerbated by the drop in demand due to the COVID-19 pandemic. Oil futures prices fell below zero for the first time in history. While lower oil prices will reduce India's energy import bill, prolonged low demand could severely hurt the government's tax revenues and damage producer economies, affecting remittances to India. The government should consider cutting retail fuel prices after the lockdown to boost the wider economy.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views1 page

    Oil Price Fall

    Uploaded by

    deepak
    The document summarizes the steep fall in global oil prices due to a supply glut caused by the price war between Saudi Arabia and Russia, exacerbated by the drop in demand due to the COVID-19 pandemic. Oil futures prices fell below zero for the first time in history. While lower oil prices will reduce India's energy import bill, prolonged low demand could severely hurt the government's tax revenues and damage producer economies, affecting remittances to India. The government should consider cutting retail fuel prices after the lockdown to boost the wider economy.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    Futures shock

    The steep fall in oil prices is


    not all good news for India

    F
    ive decades after the oil shock of 1973, when an
    Arab embargo on the supply of oil to some west-
    ern powers including the United States sent the
    price of crude skyrocketing fourfold to $12 a barrel, the
    global economy faces a fresh shock from a free-fall in oil
    prices. On Monday, May futures for the West Texas In-
    termediate (WTI) U.S. crude plunged below zero to
    touch a historic low of -$40.32 a barrel. A negative price
    implies that a seller would have to pay the buyer to hold
    the oil to be supplied. While the unprecedented plunge
    in the particular futures contract could be partly ex-
    plained away as a technical anomaly given that the May
    contract was set to expire on Tuesday, beyond which
    buyers would need to be ready to take physical deliv-
    ery, the reality is that oil prices are desperately in
    search of a bottom. A perfect storm of a supply glut exa-
    cerbated in March by a price war that saw key produc-
    ers Saudi Arabia and Russia ramp up output even as de-
    mand continued to contract on account of the
    COVID-19 outbreak sent prices into a steeper slide.
    Brent crude futures have tumbled more than 67% in
    2020 to about $21 a barrel as of Tuesday afternoon in
    London trading, while the WTI futures have plunged
    about 110% to -$5.78. The International Energy Agency
    observed this month, that the confinement measures
    instituted worldwide have resulted in a dramatic de-
    cline in transportation activity which will erase at least
    a decade of demand growth.
    With storage for crude — on land or offshore in super-
    tankers — nearing capacity or becoming prohibitively
    expensive, oil producers are going to have little option
    but to curtail output. Saudi Arabia is reported to be con-
    sidering output cuts even before a 9.7 million barrels
    per day deal it had struck with Russia to cut production
    takes effect from May. Still, merely closing the tap a
    notch or two is not going to redress the oversupply in
    the market at a time when the ‘Great Lockdown’ has
    destroyed demand on an unprecedented scale. India
    has prudently been using the sharp fall in both crude
    prices and domestic demand to accelerate the build-up
    of its strategic reserve. While the sliding oil prices
    would help significantly pare India’s energy import bill,
    a protracted demand drought would end up hurting the
    government’s tax revenues severely, especially at a time
    when it badly needs every additional rupee it can gar-
    ner. Also, rock-bottom oil prices risk damaging the eco-
    nomies of producer countries including those in West
    Asia, hurting inward remittances. After the lockdown,
    the Centre ought to consider using this opportunity to
    cut retail fuel prices sharply by foregoing some excise
    revenue for a while in order to tease back momentum
    into the wider economy.

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