Crude Oil Price (Indian Basket)

What does the Crude Oil Prices data represent?

The Crude Oil Prices data represents the cost at which the crude oil was imported by India from the global market during a specific period.

The Indian basket of crude oil is a representative benchmark for the price of crude oil imported by India (weighted average of different crude oil varieties), reflecting the diversity of the sources from which India imports its crude oil.

The average prices are a derived basket comprising Sour grade (Oman & Dubai average) and Sweet grade (Brent Dated) of crude oil processed in Indian refineries in the ratio of 75.62:24.38.

What is the significance of the Crude Oil Prices data?

Changes in international Crude oil prices play a significant role in the Indian economy as they influence India's inflation, current account balance, and fiscal deficit.

India is a net importer of crude oil, and imports as much as 85% of its energy needs from abroad. Thus, the prices of crude oil have a significant impact on India’s import bill.

India imports crude oil from various countries. The Indian basket provides a more accurate representation of the cost of these imports than any single type of crude oil.

Crude oil is a major input in various industries and sectors, including transportation, manufacturing, and energy production. As a major input for fuel, fluctuations in crude oil prices directly affect transportation costs.

Many manufacturing processes rely on oil-based energy or oil-derived products. Thus, changes in oil prices can significantly impact manufacturing costs. Crude oil prices influence the cost of energy production, particularly for electricity generation, affecting utility prices for consumers.

Tracking crude oil prices is essential for understanding the input costs for various industries and its impact on inflation, trade balance, fiscal deficit, forex reserves and overall economy.

How to interpret the Crude Oil Prices data ?

The price of crude oil can fluctuate based on global supply and demand dynamics, geopolitical tensions, production decisions by oil-exporting countries, and other macroeconomic factors.

Fluctuations in crude oil prices can contribute to overall inflation, as they impact the cost of goods and services throughout the economy. Higher oil prices can lead to increased costs for transporting goods, affecting the prices of various commodities. Typically, rising oil prices lead to higher inflation.

High oil prices strain government finances as they increase import costs and can influence monetary and fiscal policies.

Domestic factors such as taxation and subsidy policies impact local consumer prices. Thus, there's often a temporal lag between changes in global oil prices and their impact on wholesale inflation and consumer inflation. This needs to be considered while analysing crude oil price data with WPI and CPI inflation.