Tanya Ashreena
Oil prices have declined by nearly half in the past six months. But for the last two sessions, crude has gained nearly 11 percent as some investors bet that a bottom had formed to the seven-month long rout on the market.
Zee Business spoke to Nilesh Karani, Vice President of Research, Magnum Equity Broking on what the oil prices mean to India.
Why is oil declining?
Oil is declining because of macro-factors. Saudi Arabia is not willing to cut oil production, nor does a cut seem eminent.
What does the lower oil price mean to India?
The lower oil prices will be beneficial to India in the long-term. As crude levels are lower, we see an increase volume-wise in the import levels.
Oil at current levels will help lower the current account deficit. As the import levels are high right now, the rupee will not appreciate further in the short-term. However, in the next two to three years, we see it appreciating from the current levels of Rs 61 to Rs. 62 to the Rs 52 level.
Will oil prices decline further?
We believe that oil prices have bottomed out at USD 55 a barrel and doubt there will be further declines.
Are there downside risks to the Indian economy due to lower oil prices?
The downside to the Indian economy can be that the policies of New Exploration Licensing Policy may not fall through. Companies such as RIL and BP may not foray in India, and oil production may not happen, as companies are not willing to explore or extract oil in India. The government should encourage new participants. If we produce enough gas and oil, we will be self-reliant.
Should oil subsidies be reduced?
Oil subsides should be reduced. Although we have deregulated petrol and diesel, kerosene should also follow.
