The Reserve Bank of India has retained its projection for the price of Indian crude oil basket in the second half of the current financial year at $85 a barrel despite global production cuts announced by the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia, and Russia till the end of the year.
The central bank, in its Monetary Policy Report for October released Friday said that the baseline assumption for crude price (Indian basket) is retained at $85 per barrel considering economic uncertainty due to geopolitical tensions. “The wedge between global petroleum product prices and crude prices – is elevated in view of demand-supply refinery mismatches,” the report said.
“Assuming crude oil price to be 10 per cent above the baseline, domestic inflation and growth could be higher by 30 bps and weaker by around 15 bps, respectively,” the RBI said in its biannual report.
Looking forward, the markets will closely monitor OPEC’s decision whether it extends output cuts beyond December in its next meeting scheduled on November 26. “The committee will continue to closely assess market conditions,” said the organization in a statement after its last meeting.
Conversely to the above, improved supply from non-OPEC countries, de-escalation of geopolitical tensions, and weakening of demand due to aggressive monetary policy measures by central banks may pull down crude oil prices, the report said.
“If crude oil prices fall by 10 per cent relative to the baseline and assuming their full pass-through to domestic product prices, inflation could ease by around 30 bps with a boost of 15 bps to growth.”
In the first half of the financial year 2024, crude prices first eased in April amidst a banking crisis in the US and slow growth in the world’s one of the top consumers of crude, China. However, last month, prices touched their highest level since November 2022 owing to the production cuts announced by Saudi Arabia and Russia. While the OPEC has maintained its production cut in its latest meeting held on October 4, crude prices did not register a further rise but has moderated to around $85/bbl.
In addition to this, crude inventories in the US fell by 2.2 million barrels to 414.1 million barrels for the week ended September 29, data from the Energy Information Administration showed. Market players keep a close track of the inventory data as US is one of the major consumers of crude and any volatility in the supply will impact crude oil prices.
Further, the central bank kept its policy repo rate unchanged at 6.50% in its latest meeting saying that it will remain resolute in its commitment to aligning inflation to the target and anchoring inflation expectations.
“There have been multiple and overlapping shocks. The global scenario remains uncertain. In the last two weeks, the crude prices were $90-95 per barrel…given that kind of highly uncertain environment, it won’t be desirable for the central bank to say that I will do this (cut or raise repo rate) at this particular time, because it may not actually play out,” RBI Governor Shaktikanta Das said on Friday at the post-policy press conference.
The Indian crude oil basket price averaged to $90.8/bbl in October so far. In September, the average price of Indian crude oil basket was at $93.54/bbl, according to data from the Petroleum Planning and Analysis Cell.