March 9 was crude oil’s Black Monday as Saudi Arabia upped the ante when Russia refused to reduce oil production as global oil demand fell with the coronavirus outbreak. It led to the steepest fall in crude oil prices – it crashed $14.25, down 31.5 per cent – to $31.02 a barrel. That’s been the sharpest fall in crude oil prices since the start of the 1991 Gulf War.
The three-year pact between the Organisation of Petroleum Exporting Countries (OPEC) and Russia, called OPEC+, became invalid after Moscow refused to support deeper oil cuts. At $30 per barrel, crude oil is now priced at nearly half the average global benchmark price of over $60 per barrel during the last two years.
The steep fall in crude oil prices is a bonanza for the large Asian economies – China, India and Japan – that import the bulk of their oil needs and already facing a slowdown, are also feeling the impact of Covid-19 pandemic.
The India basket of crude is currently at $34.70 against an average of $65.52 in December. However, since Indian oil companies have already made provisions for March, the benefits will show only in the next fiscal. A $10 per barrel (bbl) decline in crude prices translates into a saving of $15 billion (₹1.1 lakh crore at ₹73.81 to a dollar) to the country’s net oil import bill. If crude remains subdued in the $30 range, the potential import bill savings could be to the tune of $40-45 billion (₹3-3.3 lakh crore). However, till now (March 12) petrol prices have been lowered by ₹2.15 a litre and diesel by ₹2.16 since the big crash.
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