Oil prices have dropped by over $4 a barrel this week, reaching a four-month low in the international market following OPEC+'s plan to increase production this year, coupled with rising U.S. crude stockpiles, which have added to bearish sentiments.
On Wednesday, benchmark Brent oil futures for August fell to $77.50, while July crude oil futures on West Texas Intermediate (WTI) were at $73.22.
This marks the first time oil prices have dipped below $80 a barrel since February 7, a development that bodes well for the Indian economy, which imports around 85 per cent of its crude requirements.
Lower oil prices reduce India's import bill, subsequently lowering the current account deficit (CAD) and strengthening the rupee.
Beyond strengthening the external balance, lower oil prices lead to reduced prices of petrol, diesel, and LPG in the domestic market, easing inflation in the country.
The Indian government has also mitigated the country's oil import bill by allowing oil companies to purchase discounted Russian crude despite Western pressures following the Ukraine conflict. The Narendra Modi administration has maintained its ties with Russia despite U.S. and European sanctions on Moscow.
Russia has now become the largest supplier of crude oil to India, surpassing Iraq and Saudi Arabia, which previously held the top positions. India has emerged as the largest buyer of Russia's seaborne oil, which accounted for nearly 38 per cent of India's total oil imports in April.
According to an ICRA report, the price of oil imports from Russia was 16.4 per cent and 15.6 per cent lower than from Gulf countries in FY2023 and the first 11 months of FY2024, respectively.
India's strategy of purchasing cheap oil from Russia has saved around $7.9 billion on the country's oil import bill during the first 11 months of the fiscal year 2022-23 and helped lower the current account deficit.
As the world's third-largest crude importer, India's substantial purchases of Russian oil have also helped keep global oil prices at more reasonable levels, benefiting other countries as well.
Data from the Ministry of Commerce and Industry indicates that in volume terms, the share of crude petroleum imported from Russia surged to 36 per cent in the first 11 months of FY2024 from 2 per cent in FY2022.
Meanwhile, imports from West Asian countries (Saudi Arabia, the UAE, and Kuwait) dropped to 23 per cent from 34 per cent. The discounts on Russian oil have resulted in significant savings on the oil import bill.
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