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Impact Of Crude Oil Price

On Indian EconomyPresented By

Pradeep Tiwari

WasiurrehmanRavi Thakkar

Trupal Vaghodiya

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Why petroleum sector?

The Petroelum sector is one of the six core

industries in India.

The Indian oil and gas sector is of strategic

importance and plays a predominantly pivotal

role in influencing decisions in all other

spheres of the economy.

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What Crude Oil

Crude oil is a naturally-occurring substance foundin certain rock formations in the earth.

It is a dark, sticky liquid classified as ahydrocarbon. This means, it is a compoundcontaining mainly carbon and hydrogen.

Crude oil is highly flammable and can be burnedto create energy.

Petroleum= Petra (Rock) + Oleum (Oil) (Latin)

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Crude Oil Production

Source: BP Statistical Review of World Energy 2011

0 2000 4000 6000 8000 10000 12000

Russia

Saudi Arabia

US

Iran

China

Canada

Mexico

UAE

Kuwait

India

Thousand Barrels Daily

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Crude Oil Consumption

Source: BP Statistical Review of World Energy 2011

0 5000 10000 15000 20000 25000

US

China

Japan

India

Russia Thousand Barrels Daily

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Structure of petroleumindustry

Consist of two major activities

Upstreamand Down stream.

UPSTREAM Exploration and Production of

Crude Oil and Gas.

Companies like ONGC,OIL(oil indialimited),ONGC Videsh Limited and Mangalore

refinery.

Private players are also involved into it likeCAIRN,RIL,NIKO etc.

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Cont.

DOWNSTREAM

Refining of crude oil into various

products and marketing of these products.

Companies involved into this are HPCL, IBP, GAIL, BPCL,

GSPC, IOCL, RIL, etc.

80% of crude oil demand met through imports and

balance 20% by indigenous production

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Indias Oil Import

11%

18%

5%

10%

22%

34%

Iran Saudi Arabia

Other Western Hemisphere

Africa Other Middle East

Source: Global Trade Atlas

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Energy Consumption In India

24%

1%

24%

2%

42%

7%

Oil

Nuclear

Combustible Renewables and Waste

Other Renewables

Coal

Source: The International Energy Agency

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Consumption of Major PetroleumProducts

9%

8%

36%

7%

40%

LPG Kerosene

Diesel Petrol

All other products

Source: Ministry of Petroleum Basic Statics

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Factor affecting crude oil price

World oil demand

World oil supply

Weather conditions Government policy

Political Conditions

Futures Market

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Subsidy

Indias subsidy bill zoomed to Rs 2.16 trillion or2.5% of GDP .

It was due to two reason:

High Crude Oil prices

Fertilizer subsidies, primarily on account ofimported non-urea fertilizers.

Last year budget government pegged curde oil

price of brent at $90. This year they kept thesame at $115.

Next year government has reduced the budgetedamount for oil subsidy to Rs43580 crore.

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Inflation

Crude oil price move up or down, inflationfollows in the same direction.

Crude oil price increases, its directly

affects the rate inflation. When the priceswent to high of more than $100/barrel in2008, the inflation also went up to12.27% which was highest for India in

previous two decade.

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Effects on Transportation

61%

5%

14%

7%

13%

Transport Non-Energy Other sector Electricity and Heating Industry

Source:- Report of the Working Group on Petroleum & Natural Gas Sector for the XI

plan (2007-2012)

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The transport sector is clearly dominant inpetroleum product consumption.

Transport sector consumes 60% of total

petroleum products. Road transport accounts for an even

higher percentage of energy consumption.

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Steps taken by the govt. andRBI

What Govt. did ?

1. Provided huge amount of subsidies to oilcompanies to keep them solvent.

2. This increased domestic prices of diesel andpetrol.

3. Start looking for alternate energy options toprevent future oil shocks.

What RBI did?

Increase in CRR, Repo rates.

(i.e. used monetary tools to calm down the heat)

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Conclusion

To summarize the study

When Oil prices Moves UP :

1.Inflation increases

2.Govt. spending on subsidy increases3.Foreign currency reserves reduce

4.Our export becomes weaker

5.GDP is affected negatively

6.Share market crumbles

7.Investment decreases

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Thank You