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Crude oil prices have seen a steep decline in recent periods, with Brent crude futures plunging 6.5% in the last four sessions at $68.34 per barrel – the lowest level since December 2021. The article analyses why this plunge happened, what is the current demand for crude oil, OPEC actions regarding production cuts, how India will gain, historical import and export data, and Indian industries which can gain from the decline.
Reasons for the Decline in Crude Oil Prices
Several reasons have led to the recent decline in crude oil prices:
U.S. Trade Policies and Tariffs: The action of U.S. President Donald Trump to impose a 25% tariff on Canadian and Mexican imports and increased tariffs on Chinese imports has raised fear about global economic growth. Such actions are forecasted to marginally raise U.S. inflation and decelerate economic growth, which is likely to spur economic recessions in large oil economies like Canada and Mexico.
OPEC+ Production Increases: OPEC+’s action to increase crude production in April has again threatened oil prices on the downward trajectory. The move reversed the November 2023 production cuts, and this was causing the specter of market oversupply.
U.S. Crude Stockpiles Increased: U.S. crude stockpiles have gone up higher than expected, registering a 3.6 million-barrel increase to 433.8 million barrels during a recent week, reports indicate. The rise in stockpiles, at the time of seasonal refinery upkeep, has further pushed oil prices down.
Demand for Crude Oil Today
The crude oil demand has been influenced by fears of slowing economic growth. Some of the factors influencing this include the U.S. tariffs, which have triggered inflation concerns at the Federal Reserve. This could prompt increased interest rates, slowing energy demand and economic growth. Furthermore, soft economic data from some of the large economies like China have fueled the fears of lowered oil consumption.
OPEC's Actions on Reducing Production
Responding to the decreasing prices, OPEC and its partners (OPEC+) already reduced production in order to level the market in the past. But the recent decision to increase production from April has added fuel to overproduction, and this is the reason behind the plummeting prices at present.
India's advantages
As one of the biggest crude oil importers, India stands to gain in many ways as far as the decline in global oil prices is concerned:
Reduced Import Bill: Low crude oil prices can considerably reduce India’s import bills, improving the nation’s trade balance.
Lower Inflation: Reduced oil prices can reduce transportation and production expenses, which can lower inflation levels.
Economic Growth: The cost savings through lower oil prices can be channeled to other sectors, and economic growth could be higher.
Manufacturing: Industries that depend on petroleum products such as chemicals, plastics, and textiles can witness the costs of inputs decreasing, improving margins.
The recent decline in crude oil prices is a result of a number of factors including the U.S. trade policy, increased OPEC+ production, and rising U.S. crude inventories. These events pose difficulty for the exporting countries but pose an economic advantage for import countries like India that can affect different parts of the economy.