The supply uncertainty that gripped the market following the Russian invasion of Ukraine has faded while demand-related concerns amid global economic growth worries have gained sway. What does this mean for India?
Why has crude fallen?1] Demand concernsSharply slowing global economyRecessionary fears in the developed worldFurther monetary tightening as inflation remains elevated2] Uncertain China outlookLifting of severe Covid restrictions should aid demand recovery, but there is concern infections may rise as a result
3] Fears over Russian supply issues have waned
Russian production is almost back to the pre-war level$60 per barrel cap imposed by the West is seen as too high and unlikely to disrupt Russian oil exportsDon’t expect pump prices to fall…Domestic rates of petrol and diesel are linked to international prices of these fuelsBut since Apr, domestic rates have been frozen as cos sold fuels at belowmarket rates and incurred big lossesDomestic cos will likely first recoup their losses before they pass on the benefits of a global price decline to consumers…But falling crude will have other advantagesIt will shrink India’s oil import bill, narrow trade deficitDemand for dollars to pay for oil will reduceLower energy prices will ease inflationWHAT IT MEANS:This will strengthen the rupee, reduce pressure on RBI to hike interest rate
