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Oil Prices in India

In: Business and Management

Submitted By mannarkudi
Words 1017
Pages 5
The Oil Ministers of 12 member states of Organization of the Petroleum Exporting Countries (OPEC) concluded their meeting in Vienna on November 27 by deciding to continue with their three-year-old production quota of 30 million barrels per day (mbpd). Thus, they calculatingly ignored nearly one mbpd oversupply in the global oil market which has pushed the crude prices down by over 30 per cent since June 2014. The global oil glut, in turn, has been caused by a number of factors which include OPEC’s own overproduction, rising non-OPEC production (particularly by the U.S.-based “Shale Revolutionaries”) and lower demand from China and Europe. By declining to cut their output to shore up the prices, OPEC in general, and Saudi Arabia in particular, have refused to play the role of global “swing producer.”
As most factors responsible for the current global demand-supply disequilibrium are systemic in nature, the world faces prospects for relatively bearish oil prices over the foreseeable future. Indeed, the prices have continued to fall with the Indian basket touching $72.51/barrel on November 27 — a decline of nearly $9 from the average during the first fortnight of the month.
As the world’s fourth largest importer of crude, India can afford to exult at this precipitous crude price decline. Still, given the strategic importance of this development, a more comprehensive analysis is desirable.
A virtuous cycle in the economy
From the limited perspective of India’s consumer economy, lower global oil prices undoubtedly augur well. Lower pump prices reduce pressure on the consumer who can spend the savings elsewhere, spurring the demand side of the economy. As petroleum products form a large part of the consumer price indices, lower crude prices result in reduced inflation, which in turn paves the way for lower interest rates and greater buoyancy in investments. Thus, lower

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