Context:
Global crude oil prices have witnessed a decline in recent months due to a combination of increased supply, reduced demand growth in major economies like China, and easing geopolitical risks. For India—which relies on imports for about 85% of its crude oil needs—falling oil prices provide significant economic relief, potentially improving fiscal stability, lowering inflation, and reducing the current account deficit (CAD).
Key Highlights / Details:
- Crude oil market trends:
- Global oil demand growth is slowing, especially in China, the world’s largest oil importer, due to weak economic momentum.
- OPEC+ production cuts have partially supported prices but increasing U.S. shale output and non-OPEC supply (Canada, Brazil, Guyana) have reduced price pressures.
- Prices have declined nearly 16% since the start of the year, despite ongoing geopolitical tensions in the Middle East and Ukraine.
- India’s energy dependence:
- India consumes ~100 million tonnes of crude annually, with most of it imported.
- Lower prices reduce India’s oil import bill significantly and soften retail fuel inflation.
- Reduces subsidy burden on LPG and kerosene while also easing input costs in transport and manufacturing sectors.
- Impact on trade & currency:
- Lower crude prices help narrow the Current Account Deficit (CAD) and stabilize the rupee.
- Low oil prices support foreign exchange reserves and improve investor sentiment.
- Global oil supply dynamics:
- Despite OPEC+ supply management, non-OPEC output is rising, making price control difficult.
- Strategic petroleum reserve releases by Western economies have also increased supply.
- Potential oversupply risk in 2025–26 may further push prices down unless demand picks up.
Relevant Prelims Points:
- Brent vs. WTI crude oil benchmark
- OPEC and OPEC+ grouping
- Indian Strategic Petroleum Reserves (ISPRL locations: Mangaluru, Visakhapatnam, Padur)
- Indian Basket of crude oil
- Components of Current Account Deficit (CAD)
Relevant Mains Points:
- Link between crude prices and India’s macroeconomic stability
- Energy security and diversification of crude sources (Russia, U.S., Middle East)
- Fiscal policy implications of petroleum product pricing
- Role of renewable transition in reducing import dependence