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Crude Oil crosses US$ 25/Bbl - Views on News from Equitymaster
 
 
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  • Sep 30, 1999

    Crude Oil crosses US$ 25/Bbl

    Crude oil prices crossed the US$ 25/Bbl mark on Wednesday. With this latest surge, crude prices have more than doubled this year.

    The rise in crude prices, needless to say, does not augur well for the Indian economy. The main reason for this is the high level of subsidies still being given by the government on various petroleum products like diesel and kerosene. This results in larger deficits, which translate into higher taxes and duties or even a weaker currency.

    With the crude prices continuing to rise unabatedly, the need for reform in the Indian oil sector has become the need of the hour. However, with the elections still on, any decision in this regard is likely to be taken only later in the year.

    Another fallout of the rise in prices will be its effect on producer prices. The costs of production in user industries are likely to increase substantially. Any price hike to moderate the effect on the bottomline could adversely affect the demand. This could snip the nascent economic recovery in the bud if measures to contain it are not immediately undertaken.

    Moreover, the crude so bought has to be paid for in US dollars. This has significant implications for India's current account deficit as it leads to a weakening of the value of the currency.

    India's dependence on foreign crude has become almost endemic. This is mainly due the falling domestic production. However, recent measures initiated to develop the domestic industry may take away some burden in the future.

     

     

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