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Crude oil: Self reliance needed - Views on News from Equitymaster
 
 
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  • Feb 14, 2003

    Crude oil: Self reliance needed

    The US-Iraq stand off has pushed crude price beyond US$ 30/barrel and India which meets over 70% of its crude requirements through imports has been at a receiving end. In a free market regime that we are in and with a consistent fortnightly upward revision of product prices (notably petrol and diesel) since October '02, matters for the man on the street have gone from bad to worse. And more so for the economy.

    Prices of crude have jumped over 40% over the last 12 months to US $ 33/barrel after ruling at US$ 20-22/barrel in early 2002. This set a chain reaction starting from pressure on margins on refining companies, increased cost of crude stockpiling, rise in product prices, inflationary effect and a weak market sentiment. The biggest worry for India has been the level of rise expected, in case a war does break out in the coming weeks. This, different sources peg conservatively at around US$ 35-38/barrel. This would not only worsen our situation with respect to the import bill but also push ahead prospects of economic recovery.

    Having said that, the rise in crude prices has had its impact already even if the war does not turn out to be a reality. The damage is reflected in product prices. Since the government is already contemplating to build strategic reserves to meet similar contingencies in future, product prices will remain higher to the extent of cess on petrol and diesel at least in the near term. Secondly, current inventory build up by oil PSU's, notably IOC, has been at ruling prices. Hence we will bear a loss by holding inventory at premium prices for the short term.

    Therefore, in the current context, a situation of lower crude prices consequent to the regime change in Baghdad appear to be a little far fetched. However, there is no denying the fact that the sooner the end of the current impasse, the lower will be the loss to India and other nations. It is precisely in this such scenarios that self reliance in energy sources (notably oil and gas) is felt the most. Putting up for a strong case for speedy clearance of oil exploration projects and private participation in the same will enable to do so.

     

     

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