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CRUDE OIL PRICING- INDIA AND GLOBAL

Presented By:

Arun Lekhwani :07

Kaustubh Tarte :18
Namratha Shetty :s26
Piyush Bansal :31
Ratnesh Singh :36
Srishti Vaishnav :48
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AGENDA

HISTORY

GENERAL

THE ECONOMICS OF OIL

INDIAN CRUDE OIL MARKET

OPEC SHARE OF WORLD CRUDE OIL RESERVES

OIL PRODUCERS AND CONSUMERS

OIL PRICE VOLATILITY

IMPACT OF OIL PRICES ON GLOBAL AND INDIAN ECONOMY

WHY PRIVATE PLAYERS SHUT DOWN THEIR RETAIL PUMPS ?

RECENT FUEL REFORM OF INDIA

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FUTURE TRENDS IN OIL PRICES
 HISTORY

• The presence of oil was first discovered in China in the 3rd century.

•  The crude oil was used for the lighting purposes in Ancient Persia.

•  Oil had a limited use until in 19th century.

• After that the production of oil became commercialized and it started an era of

establishment of oil refineries throughout the world.

• In 1889, the presence of oil in India was discovered in Digboi in Assam. First
crude oil refinery in India was set up in Digboi in1901.

•  In 1958 and 1974, two more places for crude oil production were identified
namely Cambay onshore basin and Bombay offshore basin.

• The largest crude oil producing oilfield is the Mumbai high field that produces
around 260000 barrels per day.
GENERAL

• Crude Oil are classified according to:

Geographical locations
Sulphur level
 Density of oil (API gravity)

•Major Crude Oil producing countries:

Saudi Arabia
Iran
Venezuela
UAE
Kuwait
Nigeria
Russia
China
THE ECONOMICS OF OIL

Supply Supply Supply

Price

Price

Price
Demand Demand Demand

Quantity Quantity Quantity 5

Oil Supply and Demand The Oil shocks Ever Increasing Demand

 Both demand and supply
are highly inelastic.
 Small changes to supply or
demand curve cause large
changes to the price.
 Drastic reduction in supply.  Rise of emerging markets.
 Rapid rise in price.  Increase in demand for oil
 Oil shocks of 1970s , oil in China and India.
shocks of gulf war.

Politics , Expectation , Risks and Speculation effect demand

and supply of oil.
 INDIAN CRUDE OIL MARKET

• India is one of the non-OPEC countries much dependent on its imports to

fulfil the domestic consumption demand as it has a much lower level of
production.

•  The country has much depended on coal to satisfy its energy needs in the
earlier times but the use of crude oil and gas is taking over the dominance
of coal with the change in time.

• India has around 5.4 billion barrels of oil reserves with it.

• The domestic production has increased in the recent past to reach the 0.8
million barrels per day mark.

• Regarding the consumption pattern of oil in India, it is the 6th largest

consumer country  and 9th position among the largest importers of the
world having a consumption of 2.2 million barrels per day.

• As of now, 70% of the consumption is met through imports.

 INDIAN CRUDE OIL MARKET

• India generally imports Oman-Dubai sour grade crude, Brent

dated sweet crude and Bonny light crude.

• The countries from which India imports crude oil are Venezuela,
Nigeria, Sudan, Iran, Kuwait.

• The major units pertaining to the oil sector in India are:

 Indian Oil Corporation (Public sector)
 Oil and Natural Gas Corporation (Public sector)
 Reliance India Ltd (Private sector)
 Essar Oil Refinery (Private sector)
 Bharat Petroleum Corporation Ltd (Public sector)
 Hindustan Petroleum Corporation Ltd (Public sector)
 Mangalore Refineries and Petrochemicals Ltd (Public sector)
OIL PRODUCERS AND CONSUMERS

Russia produces about 240% more oil In contrast, India consumes two-thirds
than it more oil
consumes. than its produces.
Mexico’s oil production was 39% America consumes a third more than
greater than domestic
domestic consumption oil production.
Canada output 35% more oil than it Although rich in natural resources,
used. Brazil’s oil
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China generated about 16% more oil consumption outpaces its fuel
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OIL PRICE VOLATILITY

 Jan 2 ,2008 - $ 100

 May 09 , 2008 - $125
 June 26 ,2008 - $ 140
 July 11 ,2008 - $147.27

 OPEC output
 Attacks in Mexico
 Tensions in Turkey , Iran
 USD depreciation

Strong
demand

Recessio
n

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IMPACT OF OIL PRICES ON GLOBAL ECONOMY

 Impact variables :
1. Import dependency
2. Oil Intensity

 Macro economic factors indicating impact -

1. GDP [ Decreases ]
2. Inflation [ Increases ]
3. Un-employment rate [ Increases ]

 International capital market valuations of equity and debt in oil-importing

countries
would be revised downwards and those in oil-exporting countries
upwards.

 Importing countries creditworthiness [ Decrease ] leads to large current

account deficits.

 Upward pressure on interest rates due to tighter monetary policies for

inflation

 Rise in value of USD. Stronger dollar <-> greater economic damage to

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IMPACT OF OIL PRICES ON INDIAN ECONOMY

When Oil Prices Move Up :

 GDP is effected negatively.

 Inflation increases.

 Government spending on subsidy increases.

 Exports become weak.

 Foreign currency reserve deplete.

 Share market crumbles.

 Investment decreases.

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WHY PRIVATE PLAYERS SHUT DOWN THEIR RETAIL PUMPS ???

 Private players are unable to match the fuel

price offered by state-run retailers, who get
compensated by the Government for selling fuel
below the cost.

 They suffered huge losses despite selling petrol

and diesel at prices higher than the state-run
retailers Indian Oil, Hindustan Petroleum and
Bharat Petroleum. 

 In spite of keeping the difference in selling price

of 4-5 rupees, private players still lost Rs 3.4 a
litre on petrol and Rs 5.8 per litre on diesel as
they have not been compensated.

 On the other hand ppublic sector retailers too

lose Rs 10.93 on sale of every litre of petrol and
Rs 14.66 per litre on diesel but the losses are
made up by issue of oil bonds by the Government
and discounts from ONGC, GAIL and Oil India. 16
RECENT FUEL REFORM OF INDIA

 Indian fuel reform freeing retailers to set petrol prices and lifting prices
of other products.

 In the short term, it will definitely hit the pockets of the people as the
petrol prices surged by approximately 10%.

 In the long term it will ease the subsidy burden of government.

 This reform will help the private sector oil companies like Reliance and
Essar which had almost 15 percent of the retail fuel market five years ago,
before subsidised state firms nearly squeezed them out.

 Due to this reform, Reliance plans to reopen all of its fuel stations in the
country and will sell petrol and diesel at the same rates as state firms.

 The government plans to free diesel prices also, but the deputy
chairman of the Planning Commission said in an interview the government
would set diesel rates for the next few months. 

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FUTURE TRENDS IN OIL PRICES

Price to stabilize around $90 per barrel.

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THANK
YOU 19