Impact Of Crude Oil Price On Indian Economy

Presented By• Nilesh Patil – 23• Manali Gaonkar - 7 • Priti Raut - 29 • Abhijit Patil-21

What Crude Oil

• Crude oil is a naturally-occurring substance found in certain rock formations in the earth.

• It is a dark, sticky liquid classified as a hydrocarbon. This means, it is a compound containing mainly carbon and hydrogen.

• Crude oil is highly flammable and can be burned to create energy.

• Petroleum= Petra (Rock) + Oleum (Oil) (Latin)

Crude Oil Production

Source: BP Statistical Review of World Energy 2011

Russia

Saudi Arabia

US

Iran

China

Canada

Mexico

UAE

Kuwait

India

0 2000 4000 6000 8000 10000 12000

Thousand Barrels Daily

Crude Oil Consumption

Source: BP Statistical Review of World Energy 2011

US

China

Japan

India

Russia

0 5000 10000 15000 20000 25000

Thousand Barrels Daily

Source: BP Statistical Review of World Energy 2011

India’s Oil Import 11%

18%

5%

10%

22%

34%

Iran Saudi Arabia Other Western Hemisphere

Africa Other Middle East

Source: Global Trade Atlas

Energy Consumption In India

24%

1%

24%

2%

42%

7%

Oil Nuclear

Combustible Renewables and Waste Other Renewables

Coal Natural Gas

Source: The International Energy Agency

Consumption of Major Petroleum Products

9%

8%

36%

7%

40%

LPG Kerosene Diesel Petrol All other products

Source: Ministry of Petroleum Basic Statics

Source:- Energy Information Administration and Bureau of Labor Statistics 2012

Crude Oil Price

Factor affecting crude oil price

• World oil demand• World oil supply• Weather conditions• Government policy• Political Conditions• Futures Market

Subsidy

• India’s subsidy bill zoomed to Rs 2.16 trillion or 2.5% of GDP .

• It was due to two reason: High Crude Oil prices Fertilizer subsidies, primarily on account of

imported non-urea fertilizers.• Last year budget government pegged curde oil

price of brent at $90. This year they kept the same at $115.

• Next year government has reduced the budgeted amount for oil subsidy to Rs43580 crore.

Crude Oil Subsidy

0

20000

40000

60000

80000

Crude Oil Subsidy

Chart Title

2010-11 2011-12

Rs in Cr

78% jump

Source: Budget document

Impact of increase in oil prices on growth and inflation levels in India

International oilprices per barrel ($)

Increase ininternational oil prices (%)

Extent of fall inmanufacturing sector(%)

Extent of fall inGDP growth(%)

Extent ofincrease in WPI (%)

50 38.9 2.1 0.4 1.5

60 66.7 9.7 1.9 3.6

70 94.2 16.9 3.4 5.7

80 122.2 24.5 4.9 7.9

140 126.1 29.7 7.3 7.2

Source:- Extractive Industries for Development Report

GDP=Private Consumption + Gross Investment + Govt Spending + ( Export – Import).

Inflation

• Crude oil price move up or down, inflation follows in the same direction.

• Crude oil price increases, it’s directly affects the rate inflation. When the prices went to high of more than $100/barrel in 2008, the inflation also went up to 12.27% which was highest for India in previous two decade.

Effects on Transportation

61%

5%

14%

7% 13%

Transport Non-Energy Other sector Electricity and Heating Industry

Source:- Report of the Working Group on Petroleum & Natural Gas Sector for the XI plan (2007-2012)

• The transport sector is clearly dominant in petroleum product consumption.

• Transport sector consumes 60% of total petroleum products.

• Road transport accounts for an even higher percentage of energy consumption.

Steps taken by the govt. and RBI

What Govt. did ?1. Provided huge amount of subsidies to oil

companies to keep them solvent.2. This increased domestic prices of diesel and

petrol.3. Start looking for alternate energy options to

prevent future oil shocks. What RBI did?Increase in CRR, Repo rates. (i.e. used monetary tools to calm down the heat)

Conclusion

To summarize the studyWhen Oil prices Moves UP :1.Inflation increases2.Govt. spending on subsidy increases3.Foreign currency reserves reduce 4.Our export becomes weaker5.GDP is affected negatively6.Share market crumbles7.Investment decreases

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