InFINeeti Vivaan Edition
August 2017 46
By Sourav Dey, IIT Roorkee
47
Fall In Crude Oil PricesImpact on Economies
The decline in the crude oil prices has been dramatic since the last few months. This event can be attributed to two major factors: 1. Increase in production by non OPEC countries like US 2. Reluctance by Organization of Petroleum Exporting Countries (OPEC) to cut production Slowing economies of China, Japan and Europe have also impacted the price by showcasing low demand as this forms the major importing group of the world. Gainers Simply put the net importers would gain and the net exporters would be worse off. However an overall effect would be
positive taking the world economy as a whole. Talking about the fall in the crude oil prices Christine Lagarde, managing director, International Monetary Fund was quoted as saying ―Assuming we have a 30% decline, it‘s likely to be an additional 0.8% (in economic growth) for most advanced economies, because all of them are importers of oil.‖ China is a major beneficiary of the current situation. As it is one of the largest importers of crude oil, weakness in the prices of the oil in the international market is in favour of the country. Every drop of $1 in the price of oil saves around 3% of the import bill. Impact on America is mixed as it is one of the
biggest importer, consumer and exporter of oil in the world. So the net effect is neutralized by savings from import and loss from exports. India also forms part of the gainer category as 70% of the oil requirement is imported. It will help government in lowering the subsidy burden and will help contain the fiscal deficit (difference between Government‘s income and expenditure). Government will also be able to decontrol the diesel prices following further fall in the crude oil prices. Macquarie Capital stated that a $10 per barrel fall in the price of the crude