India to benefit as oil prices fall more after China devalues Yuan

Indian consumers can expect fuel prices to decline as crude oil prices fall more tracking the devaluation of the Chinese currency even as Organization of Petroleum Exporting Countries (OPEC) continues to pump in more, helping the country save big bucks on energy imports.

China, the world’s second-biggest consumer of oil, devalued its currency yuan for the second consecutive day on Wednesday to support the slowing Chinese economy, aggravating concerns that energy demand from the country would fall more, adding to the glut in the market.

While demand continues to decline, OPEC, which accounts for 40 per cent of world’s crude oil output, has been pumping in more oil after Iran restored output after international sanctions were lifted.

“Oil prices will continue to be subdued as OPEC is not cutting down production and alternative sources of energy are adding to the supply. It is good news for India as it will substantially reduce our import bill and also benefit manufacturers as their input cost would go down,” Vikas Khemani, president and cohead, wholesale capital markets at Edelweiss Capital, told ET.

On Wednesday, benchmark Brent crude for September was at $49.63 a barrel, after declining over $10 a barrel in a month. Rating firm ICRA estimates that for every $1 per barrel decline in crude prices, India saved .`6,500 crore on the import bill.

Japan resuming its first nuclear reactors since the Fukushima disaster in March 2011 is likely to weaken the sentiment further on expectations that the country will slowly scale up nuclear power generation and cut down use of oil and natural gas. Analysts said LNG prices may soften too, giving relief to Indian consumers who have long-term contracts which offer most expensive prices in Asia.

“There is already a global crude oversupply of 2 million barrels a day and with the additional crude coming in from Iran, prices will continue to be weak. While this will help reduce under recoveries substantially, we expect that Indian refiners may book some inventory loss on the second quarter of 2015-16 since the prices were stronger in the previous quarter,” said K Ravichandran, senior vice-president and co-head, corporate ratings, ICRA.

“We are yet to see any rebalancing happening globally where lower prices can drive up the demand for crude oil. But as of now, prices would be subdued and energy companies will continue to scrap high cost projects,” he said.

While global energy majors are cutting capital expenditure, Indian state-run oil firms have lined upinvestments of over Rs 76,565 crore on capital expenditure for 2015-16, up 5% on year. Of this, explorer ONGC alone would invest Rs 36,250 crore. The fall in crude prices have improved their cash position, giving them a stronger position to invest more.

Source: Economic Times