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Why India is unlikely to get benefits of inexpensive crude prices

India is unpromising to get any profits of the historic low crude prices due to its limited tax collection from the petroleum
India is unpromising to get any profits of the historic low crude prices due to its limited tax collection from the petroleum sector.

What is the current market scenario?

On Monday, there was a sharp fell of crude with sellers paying buyers 37.6 USD to take the delivery for each barrel. And how did that happen? Due to the shortage of storehouse limit. The same reason why buyers are avoiding the purchase as well. However, to avoid falling into unknown territory, the May features contract of West Texas Intermediate (WTI) is taking farthest measurements. Specific barrels that are getting expired in September, as per the WTI contracts, are getting bargained at 30 USD per barrel.

On the other hand, Brend crude prices that get settled in cash didn’t observe a sharp decline. However, the costs are reduced to at least 60% this year so far.

What does it mean for the country?

Our country imports the majority of its oil requirements, and we can all agree that such low values are restorative. However, due to increasing coronavirus spread in the country, the gains are getting negated. According to economists, we all must know that the steady decline in crude prices worldwide is not a positive supply. At the risk of oil producers, the consumers like India may get benefits. But due to the reduced demand amind COVID-19 caused lockdown, the positive impact of the same on growth is offset at the moment.

As the oil import bill reduces, the country is likely to get benefits of lower crude prices. Despite this, the current economic position of India is most likely to remain limited. It is because the petroleum sector is severely affected amid slow down in commercial activities, which is affecting the tax collections of the government.

The gradual recovery of oil prices!

The sharp fall in the consumption of petrol and related products is due to the severe mobility restrictions amid COVID-19 lockdown. Hence, there is less chance that there will be a hike in expenditure and growth because of the lower costs of petroleum products.

According to the analytics, we all can surmise a gradual recovery in prices of oil once the government clears the restrictions amid lockdown. By the medium-term, economist are expecting a balance and restoration of demand-supply balance. Currently, Indian oil producing companies like ONGC and Oil India are losing their stock value by 5% on the National Stock Exchange. These companies are not performing well in the market as the firms are downgrading their ratings on both ends, Sell and Buy. As higher marketing margins are reducing the risks of lower refining margins and volumes, state-run oil producers are in a better place during this situation.