Oil has fallen to its lowest this year. Will your fuel bill fall too?

Oil has fallen to its lowest this year, trading near $76 a barrel, a sharp decline from $129 in March. 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 concerns

• Sharply slowing global economy
• Recessionary fears in the developed world
• Further monetary tightening as inflation remains elevated

2] Uncertain China outlook

Lifting 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 exports

Don’t expect pump prices to fall...

• Domestic rates of petrol and diesel are linked to international prices of these fuels
• But since Apr, domestic rates have been frozen as cos sold fuels at belowmarket rates and incurred big losses
• Domestic 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 advantages

• It will shrink India’s oil import bill, narrow trade deficit
• Demand for dollars to pay for oil will reduce
• Lower energy prices will ease inflation

WHAT IT MEANS:
This will strengthen the rupee, reduce pressure on RBI to hike interest rate