Falling oil prices : A boon to the Indian economy!!!

Recent news suggests that oil has come down to a 22-month low of $55 per barrel, almost a third from its record high of $147 in the heydays of the stock market fluctuations and inflation concerns in India. Even though the OPEC (Organization of the Petroleum Exporting Countries) had assured that they would do whatever it takes to achieve financial stability in the market, oil prices are still not gaining positive momentum. The main reason responsible for this outcome is that the OPEC's personal reputation in the market has also taken a hit in the global crisis, and word has spread across the market that the oil price needs to be at least in the range of $70-75 for the OPEC to maintain profitability. What further lowered down the expectations of any significant price rise were the forecasts of the US Energy Information Association(EIA) and the International energy Agency, both of which predicted a fall in their respective oil demands, hence leading to an unbalanced supply-demand equation.

Today, oil fell by 5 percent, aided by a drop in the US stock markets and the US government's change of stance over how it would use the $700 billion bailout package. More forecasts by the EIA portrayed that the US oil demand is set to fall by over 1 million barrels per day(bpd), and the world oil demand is slated to rise by just 100,000 bpd in 2008 and remain almost flat in 2009.

And while all this is happening, it might come as a bit of a surprise to see why there have not been any statements made by the Indian government regarding a possible fall in the fuel prices. However, the true picture is something else. As a matter of fact, the government had been losing out a substantial portion of money even while it has hiked the petrol and diesel prices, somewhere in the order of Rs.4-8 per litre, to make sure that the general public did not have to put up with the recent market turbulence. Hence, although it is not seemingly any sense of relief to the masses that oil prices are down, it is helping in stabilizing the economy. Further, even the inflation rate has gone down to less than 9%, also due to the fall in oil prices. Hence, even though there is no future scope of a decline in fuel prices, it is altogether a good sign that even though the Indian economy has taken a major blow due to the global stock market debacle, the fall in oil prices has come as a very welcome positive impact for all.