The US Federal Reserve’s decision to maintain the pace of buying bonds may have stoked global crude oil prices, but that should not be a worry for India as the sharp appreciation in the rupee will actually lower the cost of imports.
The benchmark Brent crude oil prices, which had, prior to the Fed’s decision, dropped to a six-week low level on easing Syrian tensions, gained 1.5% immediately after the announcement. This will be negative for India, which imports nearly 84% of its oil requirement. However, this will be set off by the rising local currency. The rupee appreciated over 2.2% to 61.74 against the US dollar on Thursday. Thanks to this, the import cost of crude oil for India is likely to have to dropped 0.8% to Rs 6,750 per barrel on Thursday over the previous day, according to ETIG calculations.
This will also mean that the import price of crude oil for India fell to the lowest in a month — nearly 12.5% down from Rs 7,750 on August 28, according to data from the Petroleum Planning and Analysis Cell.
The rupee appreciation has a positive impact on an import-dependent economy like India’s. A stronger rupee will mean a lower subsidy burden with the cost of imports also being lower. The under-recovery, or the cost of selling below cost, on diesel recently rose to Rs 14.5 per litre — the highest in 12 months.
This took the industry’s total under-recovery also to a yearly high of Rs 486 crore daily for the fortnight ending September 30.
Now with the rupee strengthening, the under-recovery for state-owned oil companies is bound to come down. Back-of-the-envelope calculations show the under-recovery on diesel could go down to . 10-11 per litre and the industry’s total daily under-recovery could fall below . 400 crore if this trend continues. That is a fall of nearly . 16,000 crore in under-recovery for the second half of FY14.
The benchmark Brent crude oil prices, which had, prior to the Fed’s decision, dropped to a six-week low level on easing Syrian tensions, gained 1.5% immediately after the announcement. This will be negative for India, which imports nearly 84% of its oil requirement. However, this will be set off by the rising local currency. The rupee appreciated over 2.2% to 61.74 against the US dollar on Thursday. Thanks to this, the import cost of crude oil for India is likely to have to dropped 0.8% to Rs 6,750 per barrel on Thursday over the previous day, according to ETIG calculations.
This will also mean that the import price of crude oil for India fell to the lowest in a month — nearly 12.5% down from Rs 7,750 on August 28, according to data from the Petroleum Planning and Analysis Cell.
The rupee appreciation has a positive impact on an import-dependent economy like India’s. A stronger rupee will mean a lower subsidy burden with the cost of imports also being lower. The under-recovery, or the cost of selling below cost, on diesel recently rose to Rs 14.5 per litre — the highest in 12 months.
This took the industry’s total under-recovery also to a yearly high of Rs 486 crore daily for the fortnight ending September 30.
Now with the rupee strengthening, the under-recovery for state-owned oil companies is bound to come down. Back-of-the-envelope calculations show the under-recovery on diesel could go down to . 10-11 per litre and the industry’s total daily under-recovery could fall below . 400 crore if this trend continues. That is a fall of nearly . 16,000 crore in under-recovery for the second half of FY14.
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