Crude Oil Price and Its Impact
What happens when the price of oil goes up by $ 5/barrel?
1. At the macro level, with imports of 1,568 mn barrels of crude oil in FY17, a dollar increase in prices on a permanent
basis would increase the bill by roughly Rs 10,000 cr on an annual basis (156.8*64) assuming no change in exchange
rate. Hence, 10% increase in price would amount to roughly $ 5/bbl which will involve Rs 50,000 cr of funding from
the government through enhanced subsidy in case prices were to remain neutral with the government fully
absorbing the price shock. Alternatively it has to be absorbed by the consumers in proportion to what is passed on.
2. The same would translate to an increase in the import bill of around $ 8 bn which is roughly 9% of the actual import bill (in FY17) and can potentially affect the rupee rate.
3. In terms of inflation, 10% increase in price of crude oil would mean that the on WPI could go up to 0.5% depending on the quantum of pass-through by the government and oil companies. In case of CPI it could be up to 0.15-0.2%.
Detailed report Increase in Crude Price
Source: CARE (Sep 19, 2017)