Earlier this week, prime minister Narendra Modi said energy consumption in India is estimated to grow at 4.3% per annum for the next 25 years.
India is the world's fastest growing consumer of crude oil. But India’s dependence on imports has been increasing, leaving it vulnerable to volatile crude prices.
India now imports 82-84% of its energy needs and it is not producing enough to meet this growing demand. The country produced around 32,642 million tonne of crude oil in 2017-18, the lowest in seven years. In terms of value, it amounted to $80 billion, up by 25% due to the increase in crude prices, according to data from the Petroleum Planning and Analysis Cell.
Those numbers are set to balloon further as crude oil prices have rocketed to the highest since 2014. The rise in global crude prices will have a big impact on the Indian economy because oil import is expected to grow further.
This sharp uptick is showing. On Thursday, the Indian import crude basket touched a 40-month high at $68.93 a barrel. Petrol prices in India are the highest in four years at Rs 73 per litre while diesel prices (Rs 64.96 per litre in Delhi) soared to record highs in most states.
The spike in crude prices will trigger a chain reaction in the form of higher freight prices, rising inflation rate and an increase in interest rates.
Geopolitical tensions in the Middle East are largely to blame for the surge in global crude prices.
Doesn’t Look Good
The silver lining here is that US shale oil output hit a record high at 10.4 million barrels a day last week and is expected to reach 11.44 million barrels per day in 2018. The second half of 2018 may see higher supplies.
But geopolitics and inclement climate should not spoil the party.
In the near term, crude oil price is expected to hold on to $60s a barrel as Organisation of Petroleum Exporting Countries (OPEC) limits production and the global demand grows at 1.5-1.6 million barrels per day.
It is not a good sign for India, considering the price structure that is operating in the country, where taxes form a major chunk of the fuel price. On top of that, the government has to deal with upcoming state elections.
Manisha Gupta is Editor - Commodities & Currencies
First Published: IST