India’s oil import bill is expected to shrink sharper than previously estimated 6% as the increasing spread of Covid-19 across the globe has depressed crude oil prices to below $50 a barrel, industry insiders said.
The oil ministry’s petroleum planning and analysis cell had estimated that crude oil import bill would decline 6% to $105 billion, or Rs. 7,43,900 crore, in 2019-20 from $112 billion, or Rs. 7,83,200 crore in the previous year. This is based on actual average price of $64/barrel for April-December and an assumed price of $66/barrel for January-March on an average exchange rate of Rs. 71 to a dollar.
However, since the beginning of 2020, crude oil prices have contracted by a quarter from $66 a barrel to under $50 a barrel on Friday.
“The annual numbers would now significantly change as import bills for February and March get added,” said an industry executive who requested not to be named.
If crude price falls by one dollar per barrel, India’s import bill shrinks by Rs. 2,936 crore. If exchange rate shifts by a rupee to a dollar, import bill changes by Rs. 2,729 crore.
The country’s oil import bill had halved in 2015-16 to $64 billion as crude oil collapsed but has risen every year since as prices recovered until this year when they are expected to fall. Analysts don’t expect crude oil prices to rise in a hurry and sustained lower prices would mean gains for India that imports 85% of its oil needs.
Lower prices also mean lower fuel cost for refiners, which would boost profitability. But a sharp decline results in inventory loss that sharply cuts profit for refiners.
Lower volume of crude processing by refiners this year would also contribute towards lower import bill this year.