{"id":8753,"date":"2020-04-17T13:12:45","date_gmt":"2020-04-17T13:12:45","guid":{"rendered":"\/blog\/?p=8753"},"modified":"2020-04-17T15:01:39","modified_gmt":"2020-04-17T15:01:39","slug":"reasons-and-impact-of-fall-in-oil-prices-for-indian-economy","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/reasons-and-impact-of-fall-in-oil-prices-for-indian-economy\/","title":{"rendered":"Reasons and Impact of fall in Oil Prices for Indian Economy"},"content":{"rendered":"\n

The one big\nworld event in early March 2020, apart from the coronavirus spread, has been\nthe monumental oil price\ncrash, in fact, the biggest\none-day drop, ever since the Gulf war. The price of crude oil plummeted by over\n30 percent. Brent crude, the worldwide oil price benchmark, dipped by over 28\nper cent, and traded at $32.32 for every barrel on Monday, March 9.<\/p>\n\n\n\n

Why did oil prices crash?<\/strong><\/p>\n\n\n\n

The price war\nthat was kick started by Saudi Arabia, which is the topmost exporter globally\nwas one reason. This was the result of a break-up between Russia and the OPEC+\ngroup, of which Saudi Arabia is part of. <\/p>\n\n\n\n

The term OPEC+\nrefers to a group of crude producers. Saudi Arabia leads the OPEC members\u2019\ngroup while Russia leads the non-OPEC producers\u2019 group. The OPEC+ alliance was\nformed in 2016 when oil prices had come crashing down to $30 for a barrel. Ever\nsince, the two top exporters, Saudi Arabia and Russia, have ensured that there\nis a cut in supply by 2.1 million barrels per day. Saudi Arabia wanted to push\nthat figure to 3.6 million barrels in 2020, but Russia has pushed back. <\/p>\n\n\n\n

Russian\nPresident Putin has expressed worries about ceding ground to US companies. This\neventually led to Russia and Saudi Arabia parting ways. Saudi Arabia has\nannounced plans to take supplies of oil to record levels in April, triggering a\nprice war. The kingdom\u2019s objective is to supply 12.3 million barrels of crude a\nday, at least a 2.5-million jump from its earlier production, and flood the\nmarket. <\/p>\n\n\n\n

\"Impact<\/figure>\n\n\n\n

Impact of <\/strong>oil price crash<\/strong> on the stock markets<\/strong><\/p>\n\n\n\n

The immediate\nimpact of the oil price crash was the plunge in the stock markets in India. On March 9,\nthe Sensex registered its biggest single-day crash ever. The Sensex dropped\n2467 points and touched 35,104. Also, on the same day, the Nifty 50-share index\ndropped below the yearly low of 10,294 points as well. All the sectors\nregistered falls, with sharpest dips witnessed in consumer durables, banking\nand metal, apart from oil\/gas stocks. <\/p>\n\n\n\n

On the same\ndate, oil marketing companies (OMCs) like Bharat Petroleum Corporation (BPCL),\nIndian Oil Corporation (IOC) and Hindustan Petroleum Corporation (HPCL) saw an\nincrease in their share prices. HPCL shares went up by 12.8 percent while BPCL\nshot up by 12.7 per cent. IOC also saw an increase by 4.4 per cent on that day.\n<\/p>\n\n\n\n

Sectors that may benefit from the drop in prices<\/strong><\/p>\n\n\n\n

The sectors that\nmay benefit from the oil price crash include oil marketing firms, the paint\nindustry, plastic products, detergents, lubricants which all use derivatives of\noil. <\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

(Source: The\nHindu Businessline*)<\/p>\n\n\n\n

Impact on Indian economy<\/strong><\/p>\n\n\n\n

More than 80 per\ncent of India\u2019s oil is via imports. One assessment is that this fall in oil\nprices has come as a breather for India\u2019s economy, which is already gasping for\nair. Cheaper prices lowers the foreign currency flow from India and eases\npressures pertaining to inflation and interest rates. If the low crude prices\nare sustained, India\u2019s import bills will come down drastically. Expert opinion\nis that every dollar drop will lower the import bill for India by nearly Rs\n3,000 crore. The import bill will reduce by half if the price of crude\ncontinues to hover around $30 per barrel. <\/p>\n\n\n\n

Also, for every\n$10 increase in prices of crude oil, there is a direct impact on the country\u2019s\ncurrent account deficit (CAD). The expansion of CAD goes up to 0.4 per cent of\nthe GDP. Even inflation increases by 20 basis points each time there is a 10\npercent increase in the price of crude oil. This is why the drop in prices\nmatters for India\u2019s economy. <\/p>\n\n\n\n

Meanwhile, what does the oil\nprice crash mean for your investments? For instance, if you are an investor in mutual\nfunds, you may need to continue with your\nsystematic investment plans (SIPs) rather than look to exit and enter later. Investments in mutual funds are handled by\nprofessionals who have an expertise in managing portfolios so individual\ninvestors need to focus on the long-term. Staying invested irrespective of\nmarket volatility owing to the oil price crash may go a long way in helping you\nachieve your goals. <\/p>\n\n\n\n

Additional Read<\/strong>:- Will coronavirus exacerbate Indias economic slowdown Will India bounce back to be the world\u2019s fastest growing economy?<\/a> <\/p>\n\n\n\n

This is also a good time to take stock of your investments and seek the help of experts who can offer advice on the performance of different asset classes. It may be time to check with the experts on what kind of staggered investments to make and in which sectors. If you are looking for wealth management<\/a> advice, Tata Capital has just the solutions for your needs. You can rely on experts to offer personalised services that keep in mind your financial goals and investment philosophy. <\/p>\n\n\n\n

Know More<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

The one big world event in early March 2020, apart from the coronavirus spread, has been the monumental oil price crash, in fact, the biggest one-day drop, ever since the Gulf war. <\/p>\n

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