India’s Oil Import Bill Awaits Crude Shock

OILMONSTER.COM- The slump in the value of the rupee is expected to jack up the oil import bill by at least $26 billion in the current fiscal.

Things could get worse if the US sanctions on Iran, which would come into effect from November, push up global crude prices.

"At the beginning of the financial year, we estimated the crude oil import bill to be around $108 billion at an average crude oil price of $65 per barrel and exchange rate of Rs 65 per dollar," an oil ministry official said.

But the exchange rate has been at an average of Rs 67.6 till August 14.

If the rupee is to stay around Rs 70 per dollar for the rest of the ongoing fiscal, the oil import bill will be $114 billion, he said.

The finance ministry said if the rupee stays around current levels, the government would have to consider cutting taxes on petroleum products.

Some bullish oil traders have estimated that crude prices could jump to $150 per barrel from around $75 per barrel now, while others have estimated that the shortfall in supplies because of Iran could be made up with increased output by Opec and non-Opec members.

Some have estimated that the US sanctions could block more than 1 million barrels a day of Iran's 2.5-million-barrels-a-day of crude exports.

India, which imports over 80 per cent of its oil needs, spent $87.7 billion on importing 220.43 million tonnes (mt) of crude oil in 2017-18. For 2018-19, the imports are seen at almost 227mt.

Besides, it will lead to a hike in the retail selling price of petrol, diesel and cooking gas (LPG).

The rupee has been among the worst performing currencies in Asia, witnessing an 8.6 per cent slump so far this year.

Fanned by a higher oil import bill, India's trade deficit, or the gap between exports and imports, in July widened to $18 billion, the most in more than five years.

Trade shortfall puts pressure on the current account deficit (CAD), a key vulnerability for the economy.

The rupee's depreciation will result in higher earnings for exporters as well as domestic oil producers such as Oil and Natural Gas Corporation (ONGC) who bill refiners in dollars.

But this would result in a rise in petrol and diesel prices, with the full impact likely to be felt later this month.

"Though oil firms fix the retail selling price of petrol and diesel on a daily basis, the inputs are an average of the previous fortnight. So, the rate now is based on the average benchmark of international oil prices and the exchange rate of August 1-15.

"As the rupee in the beginning of the month was at 68.3-68.6 a dollar, the exact impact of the current depreciation is not visible," he said.

 Courtesy: www.telegraphindia.com