India may get a breather from crude oil price drop, here's why

With lower crude prices and healthy performance of the OMCs in recent quarters, consumers might see reduction in petrol and diesel prices.

Crude oil prices have sustained a decline for almost a month now, reporting one of its biggest daily declines on November 16. This may be good news for India.

US WTI fell $3.06 to $72.90 a barrel on November 16 while the Brent January contract tumbled $3.02 or 3.72% to $77.72 per barrel as US crude inventories rose amid demand worries. US crude stocks rose by 3.6 million barrels last week.

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Meanwhile, India's merchandise trade deficit rose to a record high in October, pushed by higher import bills for gold and oil, among other factors. With crude oil prices cooling off, the gap may reduce.

"While a record-high deficit sounds concerning, details help in pacifying those concerns. On the imports front, crude oil prices have already eased and even the sharp jump in gold imports seen in Oct might reverse as the festival-related buying subsides. Moreover, Diwali-led supportive base also reverses in Nov. Therefore, we do not expect the trade deficit to stay at such elevated levels in the coming months," Nuvama Institution Equities said in a report.

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Crude prices have been declining steadily and hit a four-month low on November 16. This may lead to oil marketing companies (OMCs) such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation reducing fuel prices soon.

Despite the fact that OMCs have not changed retail fuel prices since April 2022, the combination of lower crude prices and the OMCs' healthy performance in recent quarters may result in lower petrol and diesel prices for consumers.

The Fall and pressure on OPEC

The deep fall in crude prices comes despite the additional supply cuts by major oil-producing countries- Saudi Arabia and Russia. Starting in July, Saudi Arabia cut oil production by 1 million barrels per day (bpd) while Russia reduced exports by 300,000 bpd. The countries have decided to continue the production cuts for the rest of the year to support prices.

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The sharp fall in prices would build press on the Organisation of Petroleum Exporting Countries (OPEC), which is set to meet on November 26 to review the production of the group.

Outlook

The latest report by the International Energy Agency (IEA) warned that the oil market would return to surplus in early 2024 despite cuts by Saudi and other producing nations.

Meanwhile, both IEA and OPEC increased their oil demand forecasts for this year and 2024. OPEC said oil market fundamentals remain strong and raised world oil demand growth to 2.46 million bpd for 2023, up 20,000 bpd from its previous forecast. IEA expects world demand to rise by 2.4 million bpd, up from the previous forecast of 2.3 million bpd.