Overview of Crude oil

1. Assignment on
Change in Crude Oil Prices
Batch 2018-20
Submitted To- Submitted By-
Dr. Megha Jain Shreeya Jain
Sherya Gupta

2. 1
Index
S.No Topic Page No.
1 Introduction 2
2 Reason behind Changes in the prices from 1986-2018
 1986-2009 fluctuations in prices
 Price fluctuation after 2009 till 2018
3-5
3 Impact of crude oil on different factors 5-6
4 Learning’s 7
5 References 8
6 Turnitin 9

3. 2
Introduction:
Millions of years ago a liquid is formed from the organisms that presents in the sea and after years
they was covered by layers of rocks, soil etc and it gradually turned into crude oil and natural gas.
Crude oil is a mixture of many hydrocarbons mainly alkanes. And after that only this change in
crude oil prices start taking and this will also impact world economy. Whenever the oil prices
changes it also heavily impact Indian economy. Some of the sectors which are mainly get impacted
when the crude oil prices changes. The sectors are mentioned below:
 Inflation: Nomura said economy can be affected as rising inflation due to high prices of
crude.
 Import Bills: India is the world's third largest Oil producer after US and China
 Rupee: The rise in crude oil price has impact on the Indian Rupee on 21st may 2018 rupee
boss 68.3 for against US Dollar it was near 18 month low for the Rupee
 Fiscal Deficit: An increase of 10 per barrel in crude prices will increase about 17000 crore
or 2.5 billion at exchange rate of 67 into subsidy equal into 0.9 % of GDP in union budget
2018-19 government budgeted petroleum subsidy of rupees 25000 crore

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Reason behind Changes in the prices from 1986-2018
1986-2005 fall in prices:
In early 1980s the prices of crude oil are continued to fall, albeit at a slower tempo. In result it
losses to Saudi oil revenue proved so large that by the end of 1985, They was pressured to opposite
its coverage of restricting oil manufacturing. Which in result turned into a Intense fall within the
crude oil prices in 1986
The prices of crude oil again started falling. After the war to free Kuwait. By 1994 with inflation
adjusted prices crude oil prices reached at its lowest price level in over ten years. It goes back to
1974.
After two consecutive years, voluntary manufacturing reductions by means of opec, prices started
out to stabilize in 1999.but as it grew to become out, inspite of the newly decreased quotas, opec
did not meet manufacturing stages by using approximate 3 million barrels in keeping with day and
that efficaciously drove the price of oil to over $25 in keeping with barrel.
In September 11, 2001 the world experience a terrorist attack which takes oil prices drop by 35%
.This drop in crude oil prices would immediately cut back help stabilize the price of crude oil. But
OPEC decides to add some more cuts to be announced till 2002.
The international 2002 quota discount decreased the glut with the aid of 1.5 million barrels in step
with day which started out to stabilize the marketplace and shortly oil became lower back to $25
consistent with barrel over again. From mid 2002 and heading into 2003 the fee of oil persevered
to rise as production turned into reduced international extensive, including the catastrophic strike
in Venezuela which positioned oil availability at 900,000 barrels consistent with day underneath
its top capability of three.5 million barrels according to day.
In years 2004 & 2005 it was noticed that surplus available on the market dip to below 1,000,000
barrels in keeping with day. It was a small quantity of glut proved to no longer be enough spare
potential to cover any Disturbance of deliver by most OPEC manufacturers. Therefore, an

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international network that thirsts for more than eighty million barrels in line with day soon finds
itself experiencing self caused oil rate in nicely excess of $50 in step with barrel.
A weakened U.S. Dollar and the ongoing growth in Asia, accelerated oil consumption
international-wide. The 2005 hurricanes and U.S. Refinery troubles associated with the conversion
from MTBE as an additive to ethanol caused growing better oil costs.
Price increase so much in 2007 in 2008
Reason behind price increment is not only one but there are several reasons behind it prices raised
in half of 2007 it raised from 2002 is best around invasion of Iraq and subprime crisis subsequent
insurgency all hurricane Katrina. Price raised because of industrialization in india and china and
in any other country between July 1999 and 2004 price remain in 20-30 range . The main major
fall was before invasion of Iraq in March 2003 ,prices started falling by 10 par barrel from 2004
.price remain increasing and it reached to 278 par barrel in 2006.price started falling and reached
near around 58 from half of 2006. Prices was 95 par barrel in October and 95 in November in
2007.
2009 to 2011 rise again
Price consistently increased from 2010 to 2011 it was 75 in july-august 2010 and 95 in nov-
December 2010. Political problem near middle east raised price in January and February 2011 but
the price rise was normal. Libya contributed highly in pushing price up ot pushed 125 par barrel
in april which was highest since 2008.
2011 to 2014 stable and high
Cold weather across Europe in January February 2012 and increasing tension between Iran and
the west were both have contributed price above 120 per barrel in February 2012.
Poor economic news in 2012 helped to cut prices by 35% between April and June.
2013 a combination of better economic proposals for us and China and seasonal demand post price
of 281 20 per barrel.
Heightened tension over Syria contributed to the price rise above 115.

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2014 to 2016 price collapses
In the second half of 2014 prices fall dramatically to below 50 Par barrel in early 2015 vehicle
demand due to poor Global growth levels cause fall in price after a recovery itself again to laugh
just over 27 per barrel in January 2016.
2016 to present steady increases
There is increase in prices since 2016 with more consistent Rises from summer 2017 Taking back
75 per barrel Global demand has been strong over this period increase in price is one of the reason
of it.
Impact of crude oil on different factors:
Impact on current account deficit
As a rule of thumb an increase of 10 Par barrel in crude oil prices will lead to an adverse impact
of 10 to 11 billion or 0.4 % of GDP on current account deficit higher oil prices will post the import
bill higher. If we talk in number and increase of 10 Per barrel in crude price will put the
Merchandise import bill up to 20 billion which will be partly increase of about 6 billion in oil
exports and 324 billion in workers remittances.
Impact on inflation
With weightage of only 2.4% in CPI, impact will entirely depend on the extent to which higher
crude oil prices are passed to the customer.
Impact on fiscal deficit
An increase of 10 per barrel in crude prices will increase about 17000 crore or 2.5 billion at
exchange rate of 67 into subsidy equal into 0.9 % of GDP in union budget 2018-19 government
budgeted petroleum subsidy of rupees 25000 crore.

7. 6
According to some experts a cutoff Rupees 1 in excise duty for both petrol and diesel will lead to
an annual revenue loss of rupees 12000 to 30000 crore or 0.65% of GDP.
Impact on the rupee
The rise in crude oil price has impact on the Indian Rupee on 21st may 2018 rupee boss 68.3 for
against US Dollar it was near 18 month low for the Rupee. Rupees depreciation is again a big
effect on Indian economy and it was affected the stock market also to recover this rupee fall the
RBI also taken few steps.
Impact on stocks Indian companies depend on crude oil price not all the companies but lot of
companies is dependent upon crude oil price this companies could be tired lubricants footwear’s
refining and allies company the profit of this company is adversely affected due to higher input
cost so this negative impact the price of stock and on the other hand the Oil exploration companies
benefited from rising oil price.
Impact on import bill
India is the world's third largest Oil producer after US and China it imports about 1575 million
barrel of crude oil annually and $1 increase in oil price will increase the import bill by 1.6 billion
around rupees 10,000 crore annually.
Impact on corporate profit margin
In India several Industries or companies which uses crude oil as raw material for their final product
in increase in crude oil prices will reduce their profit margins.
Companies like who deals in Tyres plastics Chemicals fertilizers wax Industries refining Airlines
pants footwears cement logistics and construction material these Industries can use or there are
some disease which use oil prices as the raw material to convert it into a final product so it's so if
input cost gets higher than profit margin will reduces.
Impact on inflation
Nomura said economy can be affected as rising inflation due to high prices of crude oil can result
in lower real disposable income of household and and it can hurt the demand so the overall

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economy will be affected because of this increasing crude oil prices Nomura has said that every
10 rising crude prices Rises India's inflation by 10 BPS.
Learning’s:
This project helps us to understand some basics about crude oil from where the formation of the
crude oil is started and when it was started. It also helps us understand about the OPEC countries
and some other non OPEC countries who are main exporters of crude oil for the rest of the world.
And it also help us to learn how the crude oil prices are changing from 1986-2018 and the reasons
behind the changes in the crude oil prices and the impact of these changes on Indian economy.
And also understand a but how Indian economy can stable in the scenario of changing crude oil
prices.

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References:
 https://www.kotaksecurities.com/ksweb/Meaningful-Minutes/6-effects-of-rising-
crude-oil-prices-on-the-Indian-economy
 house of common library briefing paper published 3 december 2018
 https://oilprice.com
 pubs.aeaweb.org

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