Home » What if oil climbs back to the $80 or $100 a barrel?
Subscribe for News letter
Fetching Data...
Site Map Why Finalaya
Financial Blog

What if oil climbs back to the $80 or $100 a barrel?

05 Sep 2016 |By: Team Finalaya

Oil Barrel Prices

Oil importers including India have been enjoying the party, thanks to the subdued oil prices. In the Indian context, the savings from low oil prices translated to about $30 billion in 2015 alone. Add to that the numbers for 2016, which is expected to be marginally lower, and we can confidently say that the Indian economy has got a shot in the arm. The immediate term benefits from this were:-

  • Consumers pay less for fuel
  • Oil companies have become healthier
  • Reserve Bank of India could manage inflation better
  • Rural infrastructure spending went up

Can the party go on?

There can hardly be a one-word answer to this question. But, what is for sure is that, for long, OPEC enjoyed the position of a ring leader in the oil market. It had the ability to dictate market movements, contract or enlarge supplies and literally write the price movements from the bedroom. For now, OPEC is unable to call the shots and member nations are nursing large bruises.

The shale storm

But, once the United States of America unleashed the shale storm, it brought down the dreams of not just OPEC and its members, but also other major oil exporters like Russia, China, Canada, and Mexico. Understandably, the USA started importing significantly less oil. The OPEC nations lead by Saudi Arabia started feeling the heat and soon found itself among the gallery audience watching helplessly, the game progressing inflicting more pain than any sign of relief.

Current Account Deficit

One of the huge benefits from falling oil prices for the Indian economy has been with regard to its current account deficit. As at August 2016, the CAD stands at about 1.5%. If oil prices surge beyond the $50 mark, the CAD can potentially take a hard hit. Moderate fluctuation for a week or two, however, will be absorbed by the cushion already built into the system.


Even with moderate single digit inflation, the Reserve Bank of India holds the view that more is needed to designate the Indian economy as healthy. Any surge in oil prices will invariably bring the cost push effect across a wide spectrum of goods and services making inflation control even more difficult for the government.

Subsidy burden

Riding piggy bank on the back of falling oil prices, GOI has taken the bold step of slashing the overall subsidy bill to about 4% of GDP. This is a huge measure considering that, in the past, subsidies with particular reference to fuel subsidy consumed a significant share of the overall budget. If oil prices revert to the $80 or $100 mark any time soon, fuel subsidies may need to be restored.

Oil marketing companies

Before the oil prices started climbing down, oil marketing companies carried the burden of subsidies because reimbursement from the government was invariably delayed and often partial. Presently, the major chunk of subsidies flowing through the OMCs relates to domestic gas and kerosene. With the introduction of DBTL, the OMCs get the subsidy component in hand from the customer and later transfer it back via the DBTL scheme. This saves the OMCs from perennial cash flow problems of the past.

The aam aadmi

The government will be quick to forget that it has extracted more than its due share on petroleum products during the good days. Yes, although petroleum products are expected to be priced at par with international crude prices, the aam aadmi is getting only a fraction of the gains. The rest is sucked by various taxes and duties.


If oil prices do climb back, you should expect to pay more for your fuel because international parity will wake up to haunt you. Further, it will also reverse all the benefits currently being enjoyed, dealing a body blow to the national economy.

Let us hope the party continues!

Recent Blogs


BYE BYE 2016, WELCOME 2017


Planning to start an SME? These tips can help your SME on its growth trajectory


Planning to buy an expensive home? Here are the things you should know


Lending institutions may become wary of large loans


The dark and bright side of ULIPs


Are banks on their way to come out of NPA mess?


US Presidential elections and the Indian economy


Ache din continues to elude the aam aadmi


Is gold losing its sheen – demand slowing down in India and China?


Who needs Professional Liability Insurance & Why?


What if oil climbs back to the $80 or $100 a barrel?


Top 5 Financial Lies You Need to Stop Telling Yourself


GST – How does it affect different sectors?


How to leverage Workmen Compensation Insurance Policy for labor injuries and disputes?


Union Budget 2016 – What the street expects from the FM


Child Insurance, Protect what you have


What Advantages Are There in Investing in the Indian Commodity Market?


India Needs To Brace Itself For a Predicted Currency War


January & Sensex: What is the Saga?


The Importance of Home Insurance


Secure Your Wealth – An Investment Guide for Beginners


Making a Travel Insurance Claim: Questions to Ask Yourself


Why have bonus shares nearly died out in the Indian capital markets?


10 ways to diligently invest your money


Are you still in love with Fixed Deposits?


How systematic are your SIPs?


Would Shanghai trigger another global economic meltdown?


How the Chinese market turmoil has impacted the Indian Rupee


The Fed interest rate hike factor has dimmed again – but has it become laughable?


Trading vs. investing in Indian stock markets


Job loss insurance – Your cover for potential pink slips


How simmering global events can affect Indian capital markets in the coming days


Is Nifty eyeing 10,000 by the third quarter?


Union Budget 2015 - Sector Watch


Budget Day: Why markets need to remain open on Saturday?


Who gains the most from lower oil prices?


At $1200 an ounce, is gold a safe bet compared to Indian equities?


Wondering about the relevance of ULIPs? Probably it is time to rethink!


Is there a fed rate hike looming over the markets?


Are the markets heading for a deep correction?


49% FDI in Insurance Sector: Mixed reactions


How does the Modi government impact the real estate!


Sector Prediction for next 5 years: Real Estate


10 things about coal block allocation that you should know


In the context of stock markets, what do we mean by long-term?


Sensex at 27000; Nifty at 8000 - Does D-Street actually justify these big levels?


5 Safe Post Office Saving Schemes: Safe Zone For Investors


Afraid of credit card penalties? No more penalties now in 5 simple steps!


Getting married and worried about financial planning? Drop all worries now!


Not shopping online? Know what you are missing out!


5 schemes that are going to save your tax expenditures


Do you have idle money in your bank account? Opt for Auto FD


5 reasons that make Maruti cars the most suitable for Indian needs


The Ukraine Crisis – All that you need to know


5 major events that pulled Nifty above 8000 mark


Want to buy a refrigerator or TV? Manage your money by opening a Recurring Deposit account


10 Incidents That Prove Global Events Impact Indian Markets to a Great Extent


5 Intelligent Ways To Invest in Mutual Funds


5 reasons why you should invest in Gold


A few basic tips to invest wisely in stocks


SIP –Proxy to Equity Investing?

Page  of 
First Page Previous Page Next Page Last Page
Go to