Price of Oil :- Reality check between Crude, Petrol and USD/INR

Yesterday was an event full day despite the nationwide strike by the NDA and other political parties against the petrol price hike by the ruling government. The losses of yesterday India closed yet to be ascertained, but definitely a day close loss in the Indian economy would be much more than the oil companies made it. The Indian economy grew at 5.3% in the fourth quarter of the last fiscal. Impacting the expectation of India growth story of growing more than 7% .

Bit surprised to see lot of statements has been made towards the RBI on account of tight monetary policy adopted by it, while stating that government’s hands are completely tied and it cannot do anything about the fall in growth. Considering the global scenario in the forex market RBI should not be the scape goat it has its own concerns :

a) Inflation, which is trending at 7.23 percent as of April 2012 and is above RBI’s comfort zone of 6.5 percent and below
b) Rupee falling to a record low against the US dollar. The rupee fell to an all-time low of Rs 56.40 against the USD on the back of worries over the euro zone debt crisis and domestic growth.
c) Liquidity that continues to be in deficit mode with banks borrowing around Rs 1,00,000 crore from the RBI on a daily average basis despite RBI bond buying of around Rs 50,000 crore in April 2012 .
d) Government borrowing with weekly bond auctions of Rs 15,000 crore in an environment of tight liquidity and a weakening rupee.

The present government is fighting to keep its borrowing down (it is borrowing a record amount of Rs 4,79,000 crores in fiscal 2012-13). It is unable to bring down its subsidy bill and is facing a huge backlash on freeing petrol prices. Topping it all is the fall in the Indian rupee (INR) against the US dollar (USD).

With the help of Bloomberg have tried to capture moment of the Brent crude globally from 2006 comparing with the petrol prices in India and the moment of INR against the $ dollar. Since 30 Nov 2006 to 24 May 2012 the prices of petrol has been revised 30 times by the Government of India .Whenever there is substantial prices revised in India for the petrol the figure speaks out that a huge amount of INR has gone towards funding the fiscal deficit or to social schemes out of petrol. There are scenarios when delay in the petrol price revision has widen the fiscal deficit.

In the last 7 years the major price moment in crude was in May 2008 and Nov 2008. In May 2008 the price of crude increased by 45%  (90.15 to 130.96) and the petrol hike was done by 0.06% ( INR 50.51 to 50.44) where as the INR depreciated by 7% ( 39.66 to 42.68).

Now if you see in Nov 2008 the crude oil fall by 40% ( from 137.34 to 82.12) and the petrol hike was done by 0.% ( INR 55.04) where as the INR sharply depreciated by 14% ( 43.12 to 49.11).

If we try to figure out the over all percentage increase in the petrol and INR depreciation for the last 7 years, the prices of petrol have increased almost by 50% and the INR has depreciated by 24%.

It can not be ruled out that the present crude prices are in favor of India because the INR has depreciated by more than 10% in the last 1 month and crude has fallen by 12%.

It would be interesting to plot the Oil companies profit and loss ( ratios) in the scenarios when the prices have been intervened by the govt. ( watch out for the space)

One thought on “Price of Oil :- Reality check between Crude, Petrol and USD/INR

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s