Crude Crash (Buy the barrel and keep the oil free🤣)
2020 is full of surprises... I mean Wtf is wrong with the crude oil prices now it costs lower than a water bottle 🤣. And what the hell does negative future contract of crude mean does it mean that by taking their crude oil they gonna give us the money back (LMAO😂🤣).
Crude oil Price from WTI and Mars USA fall to negative which leads to lots of twitter jokes like We can get paid for buying Petrol and Diesel .
Why are Crude Oil Prices falling ?
Well no chocolates of guessing it. One word INELASTICITY .Yes due to Corona virus lock down half of world is under strict lock down, consumption of petrol and diesel has fallen sharply with fewer vehicles on the roads, fewer tractors on farmlands , fewer diesel locomotives chugging along and diesel generators sets operating in different Industries .Taking the example of India the oil Consumption decreases 32% in March due to Corona virus Lock down . The basics of pricing in economics dictate that prices reach equilibrium where demand equals supply. Today, the demand isn’t enough to absorb the supply and when demand will fall below the supply price will go down very simple basis economics isn't it😅.
But this is not the only reason in falling of oil price. It started as soon as Russia the member of OPEC started producing more oil than usual. Saudi Arabia responded with increasing it's own production and flooded the market with more oil and thereby taking the prices down further. Then came the maxican stand-off, as maxico refused to cut down the production, as it was not adversely affected by the decline in prices as it had hedged against the decline in price.
Well the impact or fall in Crude Oil Prices will be going to depend upon the length of the lock down due to Corona virus . Already, storage capacities for crude oil across the world are near full-up. If the lock downs worldwide continue much longer, there is a strong possibility that more output cutbacks will happen, and that could mean the less efficient oil producers would shut off their oil taps first. Crude oil Price always play its role in someway or the other in global economy .
Economy of major oil producer like Arab countries, Russia always majorly depend upon Crude oil Prices ,which is going to get major hit due to fall in prices . Similarly Economy of Oil consumer like China , India etc will get Benefited from it .USA economy will also take a hard hit due to falling in Crude oil prices and it is very crucial since major oil producer states like Texas is Trump leaning and there is going to be Presidential election in USA in 2020.
How will this impact India?
India is world third largest oil importer and as well as Consumer behind USA and China. So as a Consumer India largely get benefited from lower oil prices . For Every 10 $ a barrel decline improves Indian GDP by 50 basis point or 15 billion $.
Lower Crude oil Prices also leads to lower inflation and help government to keep current account deficit in check.Since both Central Government and State Government levies taxes on Oil Which is one of the largest source of Government Revenue. So when Crude oil Price fall Government increases more tax and which keep the price in market and for general public same but increase revenue for India Government (both State and Central) .
India is expected to turn into a Current Account Surplus country after a gap of 17 year.
Lower Crude oil prices also leads to -
Lower transportation cost for goods and Services.Lower Railways travel cost which is hugely subsidized (about 48% ).
Lower cost of air travel which is again a very good news because due to corona virus Lock down Airline companies are going to badly hit but lower crude oil price can help them in quick recovery.
Will this impact on crude benefits India.
Theoretically Yes, India can be benefited from Storing Crude oil when price is Low and using them when Price will get high (which is not going to get much higher in recent time ).
But the problem is India have storage capacity of just 5.33 MT of crude oil which is just about 10 days of total consumption . While India's refineries can keep stock of 60 days which make India can store oil for just 70 days in total , Unlike China and Japan which have storage capacity for Months .
So it look like a missed opportunity for India .
Lower oil prices means boost in consumer spending and government revenue from exise duty. At the macro level it impact the fiscal deficit and check on external borrowings. Cheaper crude reduces India's foreign currency outflow and inflationary pressure, besides reviving economic activity.
Crude oil Price from WTI and Mars USA fall to negative which leads to lots of twitter jokes like We can get paid for buying Petrol and Diesel .
Why are Crude Oil Prices falling ?
Well no chocolates of guessing it. One word INELASTICITY .Yes due to Corona virus lock down half of world is under strict lock down, consumption of petrol and diesel has fallen sharply with fewer vehicles on the roads, fewer tractors on farmlands , fewer diesel locomotives chugging along and diesel generators sets operating in different Industries .Taking the example of India the oil Consumption decreases 32% in March due to Corona virus Lock down . The basics of pricing in economics dictate that prices reach equilibrium where demand equals supply. Today, the demand isn’t enough to absorb the supply and when demand will fall below the supply price will go down very simple basis economics isn't it😅.
But this is not the only reason in falling of oil price. It started as soon as Russia the member of OPEC started producing more oil than usual. Saudi Arabia responded with increasing it's own production and flooded the market with more oil and thereby taking the prices down further. Then came the maxican stand-off, as maxico refused to cut down the production, as it was not adversely affected by the decline in prices as it had hedged against the decline in price.
Well the impact or fall in Crude Oil Prices will be going to depend upon the length of the lock down due to Corona virus . Already, storage capacities for crude oil across the world are near full-up. If the lock downs worldwide continue much longer, there is a strong possibility that more output cutbacks will happen, and that could mean the less efficient oil producers would shut off their oil taps first. Crude oil Price always play its role in someway or the other in global economy .
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| Both soda and crude @ 1$😂 |
How will this impact India?
India is world third largest oil importer and as well as Consumer behind USA and China. So as a Consumer India largely get benefited from lower oil prices . For Every 10 $ a barrel decline improves Indian GDP by 50 basis point or 15 billion $.
Lower Crude oil Prices also leads to lower inflation and help government to keep current account deficit in check.Since both Central Government and State Government levies taxes on Oil Which is one of the largest source of Government Revenue. So when Crude oil Price fall Government increases more tax and which keep the price in market and for general public same but increase revenue for India Government (both State and Central) .
India is expected to turn into a Current Account Surplus country after a gap of 17 year.
Lower Crude oil prices also leads to -
Lower transportation cost for goods and Services.Lower Railways travel cost which is hugely subsidized (about 48% ).
Lower cost of air travel which is again a very good news because due to corona virus Lock down Airline companies are going to badly hit but lower crude oil price can help them in quick recovery.
Will this impact on crude benefits India.
Theoretically Yes, India can be benefited from Storing Crude oil when price is Low and using them when Price will get high (which is not going to get much higher in recent time ).
But the problem is India have storage capacity of just 5.33 MT of crude oil which is just about 10 days of total consumption . While India's refineries can keep stock of 60 days which make India can store oil for just 70 days in total , Unlike China and Japan which have storage capacity for Months .
So it look like a missed opportunity for India .
Lower oil prices means boost in consumer spending and government revenue from exise duty. At the macro level it impact the fiscal deficit and check on external borrowings. Cheaper crude reduces India's foreign currency outflow and inflationary pressure, besides reviving economic activity.
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