Post on 28-Jun-2015
Impact Of Crude Oil Price On Indian Economy
Presented By• Nilesh Patil – 23• Manali Gaonkar - 7 • Priti Raut - 29 • Abhijit Patil-21
What Crude Oil
• Crude oil is a naturally-occurring substance found in certain rock formations in the earth.
• It is a dark, sticky liquid classified as a hydrocarbon. This means, it is a compound containing mainly carbon and hydrogen.
• Crude oil is highly flammable and can be burned to create energy.
• Petroleum= Petra (Rock) + Oleum (Oil) (Latin)
Crude Oil Production
Source: BP Statistical Review of World Energy 2011
Russia
Saudi Arabia
US
Iran
China
Canada
Mexico
UAE
Kuwait
India
0 2000 4000 6000 8000 10000 12000
Thousand Barrels Daily
Crude Oil Consumption
Source: BP Statistical Review of World Energy 2011
US
China
Japan
India
Russia
0 5000 10000 15000 20000 25000
Thousand Barrels Daily
Source: BP Statistical Review of World Energy 2011
India’s Oil Import 11%
18%
5%
10%
22%
34%
Iran Saudi Arabia Other Western Hemisphere
Africa Other Middle East
Source: Global Trade Atlas
Energy Consumption In India
24%
1%
24%
2%
42%
7%
Oil Nuclear
Combustible Renewables and Waste Other Renewables
Coal Natural Gas
Source: The International Energy Agency
Consumption of Major Petroleum Products
9%
8%
36%
7%
40%
LPG Kerosene Diesel Petrol All other products
Source: Ministry of Petroleum Basic Statics
Source:- Energy Information Administration and Bureau of Labor Statistics 2012
Crude Oil Price
Factor affecting crude oil price
• World oil demand• World oil supply• Weather conditions• Government policy• Political Conditions• Futures Market
Subsidy
• India’s subsidy bill zoomed to Rs 2.16 trillion or 2.5% of GDP .
• It was due to two reason: High Crude Oil prices Fertilizer subsidies, primarily on account of
imported non-urea fertilizers.• Last year budget government pegged curde oil
price of brent at $90. This year they kept the same at $115.
• Next year government has reduced the budgeted amount for oil subsidy to Rs43580 crore.
Crude Oil Subsidy
0
20000
40000
60000
80000
Crude Oil Subsidy
Chart Title
2010-11 2011-12
Rs in Cr
78% jump
Source: Budget document
Impact of increase in oil prices on growth and inflation levels in India
International oilprices per barrel ($)
Increase ininternational oil prices (%)
Extent of fall inmanufacturing sector(%)
Extent of fall inGDP growth(%)
Extent ofincrease in WPI (%)
50 38.9 2.1 0.4 1.5
60 66.7 9.7 1.9 3.6
70 94.2 16.9 3.4 5.7
80 122.2 24.5 4.9 7.9
140 126.1 29.7 7.3 7.2
Source:- Extractive Industries for Development Report
GDP=Private Consumption + Gross Investment + Govt Spending + ( Export – Import).
Inflation
• Crude oil price move up or down, inflation follows in the same direction.
• Crude oil price increases, it’s directly affects the rate inflation. When the prices went to high of more than $100/barrel in 2008, the inflation also went up to 12.27% which was highest for India in previous two decade.
Effects on Transportation
61%
5%
14%
7% 13%
Transport Non-Energy Other sector Electricity and Heating Industry
Source:- Report of the Working Group on Petroleum & Natural Gas Sector for the XI plan (2007-2012)
• The transport sector is clearly dominant in petroleum product consumption.
• Transport sector consumes 60% of total petroleum products.
• Road transport accounts for an even higher percentage of energy consumption.
Steps taken by the govt. and RBI
What Govt. did ?1. Provided huge amount of subsidies to oil
companies to keep them solvent.2. This increased domestic prices of diesel and
petrol.3. Start looking for alternate energy options to
prevent future oil shocks. What RBI did?Increase in CRR, Repo rates. (i.e. used monetary tools to calm down the heat)
Conclusion
To summarize the studyWhen Oil prices Moves UP :1.Inflation increases2.Govt. spending on subsidy increases3.Foreign currency reserves reduce 4.Our export becomes weaker5.GDP is affected negatively6.Share market crumbles7.Investment decreases
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