How crude oil affects oil companies in India and India’s economy

                             

Falling oil prices in global community will offer big benefits to Indian Economy, but still no hope of golden edge for oil companies in India. There are many reasons for price falling such as return of Iran in oil market despite of heavy fines by US Authorities, Russia produces more, China and US has lowered their demands.

Another very interesting reason is that OPEC club sits idle. You may ask “But they are reducing cut quotas by reducing oil production”, But you must know that Saudi Arabia is by far biggest producer in that regional club which denies to cut productions. Net effect is resolution to cut down productions is in vain move.

India’s growth story revolves around as India imports two third (2/3) of its oil requirement. A Half-dollar fall in crude oil prices will save country about 19 to 21 billion rupees. This will bring soothing effect to inflation. Low prices could spark up demand, which in turn could back up oil prices.

Effect on various Indian companies:

Reliance Industries:  Profitability of Reliance in refining segment will be affected by oil price. RIL’s E&P segment will be negatively impacted.

GAIL India: There will be significant negative impact on profit of GAIL’s Petchem and LPG segments, which in effect will result in lower revenues.

Castrol India: Castrol will be directly benefited by lower price, but It will be difficult for company to retain its pricing power against companies in same segment.