Crude oil & Crude oil price in India

Crude oil is the mother of the global financial market in general and the commodity market in particular, as this product contributes significantly to global economic development. It is a naturally occurring and flammable liquid found in rock formations on Earth. Crude oil is used to power automobiles, trucks, planes, boats, and railways. It is also used in a variety of products, including road asphalt, lubricants for various equipment, and plastics for toys, bottles, and food packaging.

Crude oil prices are influenced by factors such as supply and demand, geopolitical tension, weekly oil inventories, international trade trends, adverse weather conditions in the Gulf of Mexico, and so on. Among the various grades, West Texas Intermediate (WTI) and Brent are two important crude oil grades widely used worldwide. The benchmark exchange for WTI oil is NYMEX, while the benchmark exchange for Brent oil is Inter Continental Exchange.

The global oil market is controlled by the United States and OPEC+ (13 OPEC members plus Russia). The Middle East holds the majority of the world's oil reserves, with 48% of all known and identified reserves located there. The United States is the world's second largest crude oil producer, accounting for roughly 20% of global oil production. The Organization of Petroleum Exporting Countries, or OPEC, is a group of 13 countries that plays an important role in the global oil market. This cartel controls the majority of the world's oil supply, accounting for 33.59% of global oil supply.

India, China and Latina America, which are emerging markets in the world, play a significant impact on the global crude oil prices because of their consumer base. Crude oil reserves are limited and cannot be increased because it has recently become difficult to find new oil reserves due to a lack of capital for the discovery and extraction of new reserves. On the other hand, demand for crude oil grows by the day.

For the year 2023, the world oil supply is expected to increase by 1.61% YoY to 101.47 million barrels per day with major supply coming from the United States while OPEC nations are likely to maintain the same level of production as that of 2022. The global oil demand is expected to increase by 1.48% YoY in 2023 to 100.90 million barrels per day leaving the global oil market in a surplus of 0.57 million barrels per day.

After the United States and China, India is the world's third-largest consumer of crude oil, consuming approximately 4.4 million barrels per day, or 4.6% of global oil consumption. India's crude oil reserves are very low, so the country relies on imports from major producing countries. India plays a vital role in the global oil market in terms of consumption as it is having its own reserves in sufficient quantity. India imports various grades of crude oil to meet its consumption demand.

Indian Basket (IB), also known as Indian Crude Basket, is weighted average of Dubai and Oman (sour) and the Brent Crude (sweet) crude oil prices. It is used as an indicator of the price of crude imports in India and Government of India watches the index when examining domestic price issues.

Crude oil futures trading started on Multi Commodity Exchange of India with an inception of the exchange in 2003. In recent years, crude oil derivatives are generating highest volumes on Indian exchange. Following are different investment instruments of crude oil on Indian exchange.

1. Crude Oil Futures – 100 Barrels
2. Crude Oil MINI Futures – 10 Barrels
3. Options on Crude Oil Futures
4. Energy Index – ENRGDEX – Consisting of Crude Oil with 75% weightage and Natural Gas with 25% weightage

Factors affecting crude oil price

• Prices ruling in the international markets – WTI and Brent
• Currency exchange rate movements, especially, the US dollar
• Economic factors: industrial growth, global financial crisis, recession, and inflation
• OPEC announcements – Production, Exports, Global Oil Demand
• Weather variability – Hurricane Season in the United States
• Government trade policies (import duties, penalties, and quotas)
• Geopolitical events
• Changes in the refining sector; for example, a drop in the refinery utilisation rate
• US crude and product inventories data

Summary

Crude oil is an essential commodity for India's economic growth as it is the most importance source of energy for industries and transportation. It is used to produce various petroleum products, such as petrol, diesel, and jet fuel, which are essential for the smooth functioning of the economy. The price of crude oil in India is influenced by various factors such as global supply and demand, geopolitical tensions, currency exchange rates, and government policies. The price of crude oil in India is determined by the Indian basket of crude oil, which represents the average of Oman, Dubai, and Brent crude oil prices.

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