Yeasterday Crude oil Price from WTI and Mars USA fall to negative which leads to lots of twitter jokes like We can get paid for buying Petrol and Diesel .
Well First of all not all Crude oil price are same. There are different basket from different places (Oil Producers) and every Basket cost differently . For India Crude oil price is still somewhere trading between 20$ to 25$ , which obviously low and a good news for Indian Economy .
But before talking about How low Crude oil price will affect Indian Economy , Let us first talk about Some important aspect like Why does Crude oil price is falling massively ?
Why are Crude Oil Prices falling ?
Well no prize of guessing it. Yes due to Corona virus lock down half of world is under strict lock down, consumption of gasoline (petrol) and diesel has fallen sharply with fewer vehicles on the roads, fewer tractors on farmlands , fewer diesel locomotives chugging along and diesel gen sets operating in different Industries .Taking the example of India the oil Consumption decreases 35% in March due to Corona virus Lock down .
The basics of pricing in economics dictate that prices reach equilibrium where demand equals supply. Today, the demand isn’t enough to absorb the supply and when demand will fall below the supply price will go down very simple .
But this is not the only reason in falling of oil price, The Crude oil price war between OPEC and Russia the two largest oil Producer of world and breakup in dialogue over production cut between them is another main reason . Since when Production starts to go over demand we just cut the production but both OPEC (lead by Saudi Arabia) and Russia refuges to do so . While in last few days they have reached on certain agreement but its too late now and Crude oil Price will be going to remain on this level for many days.
So will it be for short term or long term ?
Well the impact or fall in Crude Oil Prices will be going to depend upon the length of the lock down due to Corona virus . Already, storage capacities for crude oil across the world are near full-up. If the lock downs worldwide continue much longer, there is a strong possibility that more output cutbacks will happen, and that could mean the less efficient oil producers would shut off their oil taps first. And for a large section of them, restarting would be an expensive affair unless crude prices reach the Pre-COVID19 levels. So, when demand finally revives post lock down, the supply will also have got tightened and this could actually lead to a strong reversal in crude prices. But how much the price will reverse it the time will tell .
Now before talking about impact of lower Crude oil price on Indian Economy let us take short account on its impact on global economy
So how lower Crude oil price will effect global economy and different countries of the world ?
Crude oil Price always play its role in someway or the other in global economy .Economy of major oil producer like Arab countries, Russia always majorly depend upon Crude oil Prices ,which is going to get major hit due to fall in prices . Similarly Economy of Oil consumer like China , India etc will get Benefited from it .USA economy will also take a hard hit due to falling in Crude oil prices and it is very crucial since major oil producer states like Texas is Trump leaning and there is going to be Presidential election in USA in 2020 . So Falling Crude oil is going to affect USA general election 2020 .
Now finally coming to how low crude oil price will affect Indian Economy .
How falling crude oil Price will going to affect Indian Economy ?
India is world third largest oil importer (import 80% of its total consumption) and as well as Consumer behind USA and China . China is largest importer and 2nd largest Consumer while USA is largest Consumer and 2nd largest Importer .
So as a Consumer India largely get benefited from lower oil prices . For Every 10 $ a barrel decline improves Indian GDP by 50 basis point or 15 billion $.
Lower Crude oil Prices also leads to lower inflation and help government to keep current account deficit in check.Since both Central Government and State Government levies taxes on Oil Which is one of the largest source of Government Revenue. So when Crude oil Price fall Government increases more tax and which keep the price in market and for general public same but increase revenue for India Government (both State and Central) .
India is expected to turn into a Current Account Surplus country after a gap of 17 year.our currency is not depreciating as is the case with other Emerging market countries. Most Emerging Market currencies have weakened by 20-25% while INR has depreciated only 7% post Corona virus but low Crude oil Price keeping our Currency in check .
Lower Crude oil prices also leads to -
Lower transportation cost for goods and Services.
Lower Railways travel cost which is hugely subsidized (about 47% ).
Lower cost of air travel which is again a very good news because due to corona virus Lock down Airline companies are going to badly hit but lower crude oil price can help them in quick recovery .
Can India benefited from storing Crude oil right now while price is low and use them when price is high ?
Theoretically Yes , India can be benefited from Storing Crude oil when price is Low and using them when Price will get high (which is not going to get much higher in recent time ).
But the problem is India have storage capacity of just 5.33 MT of crude oil which is just about 10 days of total consumption . While India's refineries can keep stock of 60 days which make India can store oil for just 70 days in total , Unlike China and Japan which have storage capacity for Months .
So it look like a missed opportunity for India .
Will every one in India will get Benefited from falling Crude Oil prices ?
General public of India can be benefited from low oil prices indirectly since Government of India is getting benefited but they can be benefited directly only if Government (both central and state ) will let it pass to them by not increasing taxes .
India imports 80% of its total oil Consumption and produce 20% Ingenuously so the company Like ONGC and OIL (PSUs) , RIL (comapny of Mukesh ambani) who produce 20% oil consumption of India will go in loss . Since ONGC start lossing money if Crude oil price fall below 35$ per barrel .
Similarly Mukesh Ambani wealth decline 35% due to fall in Oil Prices and will deplete further if Corona virus Lock down continue and oil prices fall further or remain at this level .But never mind he still going to be a Billionaire and one of the richest man in Asia .
So most of the Indian people and company will benefited from Falling Crude oil prices directly or indirectly except few .But overall the lower Crude oil Prices is Good news for Indian Economy .
Oil prices on Monday tumbled to level not seen ever before to negative in the first in history in WTI basket Mars Us basket closing in negative -16$ and -30$ Respectively . But both basket is of USA nothing to do with Indian Basket from where India Purchases Oil .
What is Indian Basket of Crude Oil ? and How to Calculate Indian Basket Crude oil price ?
Indian Basket is representation of derived basket of crude oils comprising Dubai and Oman (DME Oman) and Brent . During the year 2016-2017, the ratio was 72.38 : 27.62 (Dubai : Brent) and Since the year 2017-2018, the ratio is 74.77 : 25.23 (Dubai : Brent). The Indian Basket is weighted average of daily prices and is updated daily on the website of the Petroleum Planning and Analysis Cell of the Ministry of Petroleum and Natural Gas.
That means the India crude oil basket price can be calculated by
75* Average Price of Dubai and DME oman Crude oil Basket + 25 * Price of Brent crude oil Basket
diveded by 100
Since Dubai basket crude oil price is currently 28$ and DME Oman Crude oil Price is 24$ respectively while Brent Crude oil price is 25$ So it makes India Crude oil Basket price roughly 24$ to 25 $ ,Since sell of average amount of oil to India keep changing between Dubai Basket and and Oman Basket .
So first of all India Crude oil Basket Price is not Negative like WTI and Mars USA but yes 25$ is very less as compare to 120 $ which we use to pay during 2012 -2013 , and It is going to very positive effect on Indian Economy .
As on 21/4/2020 it is Rs 1754 as shown in picture .
The Prime minister of UK Boris Johnson was admitted in ICU recently after infected by Coronavirus and we all are praying for him since it will not be good for any country to loose its Prime minister in this global crisis of pandemic Coronavirus irrespective of political affiliation. But having said that it is also true UK as a country is in grave danger from all side due to the Pandemic Coronavirus and the Prime Minister Boris Johnson will not be able to do much about it.
Let us begin with the first thing that is the - immense loss of life due to Coronavirus and families affected by it which Prime Minister Boris Johnson will not be able to stop because its too late now -
As on 11th April 2020 , about 75000 people have been infected by Coronavirus in which about 9000 people have died including young adults, health workers etc .
Scientists of UK have been pushed back against an influential new coronavirus
model that predicts the UK will be the worst-hit European country, with a
death toll from Coronavirus(Covid-19) possibly much higher than previously thought.
The grim forecast came from the Institute for Health Metrics and Evaluation
(IHME) at the University of Washington's School of Medicine in Seattle
on the Coronavrus and its affect on people of UK. It predicted 66,314 people would die of Coronavirus (Covid-19) in the UK
by early August.
The UK government and Prime Minister Boris Johnson's plan for tackling the epidemic has been largely informed by a study from the Imperial College London,
which said that a lock down and social distancing measures would --
hopefully -- limit the number of deaths to between 20,000 and 30,000 which look very unlikely now .
The another thing which has been badly handled by Prime Minister Boris Johnson even before the pandemic Coronavirus strike - ECONOMY
UK 's economy was almost stagnant in the three months to February specially after Brexit, even before the Coronavirus crisis escalated and pushed the country into what is likely
to be a historic recession, official data showed . Gross domestic product rose by 0.1% in the December-February period,
the Office for National Statistics said, weaker than a median forecast
for growth of 0.2% in a Reuters poll of economists. Paul Dales, an economist with Capital Economics, said the figures were the last that would look anything like normal for a while. There are 5 ways the economy of UK is going to be affected and Prime minister Boris Johnson will not be able to do much about it since he already messed up with Brexit .
1. GDP will fall opposite of the forecast of growth amid CoronaVirus Lock down:-
UK's economy is shrinking at a record pace, faster than during the 2008-09 financial crisis, The Coronavirus lock down will mean that in March and April GDP will
fall at a speed and magnitude no one has ever seen and no economy has
ever experienced before. In February alone, when flooding hit shopping and construction, GDP
fell by 0.1% compared with a forecast for growth of 0.1% in the Reuters
poll.
2. Almost half of companies were suffering before the Coronavirus lock down :-
Of the almost 4,000 companies the ONS spoke to, 45% said their
takings were substantially below normal between 9 and 22 March; almost
all attributed that to the fallout from Coronavirus.
And they were
responding largely before Prime Minister Boris Johnson announced the
enhanced restrictions on movement and closure of non-essential
businesses, including gyms, hairdressers, cinemas and pubs, on 23 March due to Coronavirus
So
the next set of figures are likely to show a big rise in the level of
suffering. Economists are warning that activity could have dipped by as
much as 15% across the quarter.
3. Over 25% of firms were intending to lay off staff temporarily -
This was also before the coronavirus lock down announced by the Prime minister Boris Johnson which include closure of non-essential businesses and the announcement of the government's Job Retention Scheme.The
scheme allows organizations to furlough staff who were on the payroll
up to the 28 February (even if they were laid off or left subsequently),
with the government covering up to 80% of salaries.So again, the numbers will have risen since - probably sharply. And this of course doesn't cover all affected workers.
Other
figures have shown that the number applying for universal credit, many
of whom will have been self-employed, have risen by 950,000 in just two
weeks.Even with the furlough scheme, some economists say the UK unemployment rate could double to 8% this year.
4.The cost of cold and flu remedies has gone up since the announcement of Coronavirus Lock down announced by Prime minister Boris Johnson -
As the demand for hand sanitizer , soap, and toilet rolls increases so did the concerns of excessive price mark-ups.The Markets Authority set up a coronavirus task force to deter price gouging as directed by Prime minister Boris Johnson
But are these fears are real ?
The ONS said that almost 70% of businesses reported that prices of their products were unchanged.Only 12% admitted to raising prices but in many cases this was due to problems with getting hold of supplies.
The
ONS has also zoned in on some of the current must-haves, monitoring the
price of items from toilet rolls to vitamin C online.It found that cold and flu remedies were 10.7% more expensive in the last week of March than in the previous week .
This
is on top of reports of price rises earlier in the month which
pharmaceutical companies have blamed on rising demand and a scarcity of
raw materials.Other items have seen prices vary by far less with some, such as antibacterial wipes and baby food seeing falls recently.As yet, there's little evidence here of a significant impact on the overall cost of living due to Coronavirus Pandemic.
5. Many firms that export or import have had supply chain issues amid Coronavirus Lock down and restriction announced by prime minister Boris Johnson :-
Roughly six out of ten of the firms the ONS heard from neither import or export.But
of those that do, more than half reported disruption. This is
presumably down to interrupted production around the globe - perhaps
inevitably in the face of movement restrictions, shuttered factories and
offices and depleted workforces.
The ONS survey doesn't reveal the extent of the disruption - it may just a be a slight delay.However,
given today's highly integrated global supply chains, this could flag
supply issues with some imported items down the line.But the
report also shows traffic though ports up to 28 March is holding up. And
we know that airlines and the shipping industry are working with
government to maintain the transport of essential cargo.
The last thing which will be affected is - The Mental Health of all section of society both due to death of loved one from Coronavirus and the Social distancing :-
UK's society is very Companionable and Sociable . People are very out going , they love to mingle ,go on dates and make friends . But amid lock down due to Coronavirus and harsh call by Prime minister Boris Johnson for Social Distancing (which is of course very necessary to fight the pandemic coronavirus) the society and its people will going to largely affected and their mental health will take a toll.
More than 80% of young people with a history of mental ill health
have found their conditions have worsened since the coronavirus crisis
began in the UK, a survey has found. In a study by the mental health charity YoungMinds, 2,111 people aged under 25, who had a history of mental health needs, were asked how the pandemic coronavirus had affected them.Of the 83% who said the pandemic had made their mental health worse,
32% said it had made it “much worse” and 51% said it had made it “a bit
worse”.
There is going to be psychological distress, anger, depression and
post-traumatic stress disorder (PTSD) after episodes of people living
in isolation or quarantine in the face of Pandemic Coronavirus which is a severe acute
respiratory syndrome (SARS). The impact of quarantine is
wide-ranging, substantial and long-lasting.The physical spread of Coronavirus can be halted through
isolation and Social distancing protocols, but there is no prize for guessing it is largely going to affect people's mental health, and the effect is going to last very long.
The primary ways of containing the pandemic Coronavirus that is isolation and physical
distancing have made the world a place we’ve never seen before. Now
the mere sight of people standing close together sets off a mental
alert. This is a time when we stay away from those we love to keep
them safe.
So yes ,Prime Minister Boris Johnson is going to be discharged from ICU very soon but it will interesting to see when people and economy of UK will come out from ICU and right now there is no light in the end of the tunnel due to the darkness spread by Coronavirus.
Alexander Boris de Pfeffel Johnson born on 19 June 1964 is a British politician serving as the Prime minister of United Kingdom and Leader of the Conservative Party since July 2019. He has became MP in 2001 for the first time . He also served as Mayor of London from 2008 to 2016. Johnson has been associated with both economically and Socially Liberal policies.
In February 2016, Johnson endorsed Vote leave in the "Out" campaign for the 2016 United Kingdom European Union membership referendum.
He called Cameron's warnings about leaving "greatly over exaggerated".
Following this announcement, which was interpreted by financial markets
as making Brexit more probable.He is considered as a brash standard-bearer for a British exit from the
European Union.
Mr Boris Johnson is a former journalist and the author of a Winston
Churchill biography whose ambition as a child was to become “world
king.”
After becoming 25th Prime minister of UK
He won the contest to become the next prime minister on
Tuesday, at a critical moment in his country’s history and with less
political clout than just about any of its leaders since the Second
World War.He may promised to carry out Britain’s labyrinthine
exit from the European Union by Oct. 31, But His Conservative Party holds only a slim working majority in Parliament.He will also enter 10 Downing Street at a moment when the country is
confronting a crisis with Iran over its seizure last week of a
British oil tanker, threatening to draw Britain into a larger
showdown between Tehran and Washington.
Mr. Johnson seemed to acknowledge some incongruity by himself on Tuesday after the result were announced.“I
know that there will be people around the place who will question the
wisdom of your decision, and there may even be some
people here who still wonder quite what they have done.”he saaid at Coservative party meeting.
Mr.
Johnson has a long track record of statements about Iran, Brexit and
other subjects, but there is no consensus on how he might actually act
as prime minister.
The Fate of Brexit
President Trump congratulated Mr Johnson on Twitter and added
Brexit
will define Mr. Johnson’s legacy as well as Britain’s place in the
world.
Mr Johnson promise to pull it off by Oct. 31 “do or die” has already
met deep skepticism within his party.
“We’re going to get Brexit done on Oct. 31, we’re going to take
advantage of all the opportunities that it will bring in a new spirit of
can-do, and we’re once again going to believe in ourselves,” Mr.
Johnson vowed anew on Tuesday. “Like some slumbering giant, we’re going
to rise and ping off the guy-ropes of doubt and negativity.”
But is it really that simple ? No , Not really .For an orderly exit that minimizes economic disruption, Mr. Johnson must
convince both the British Parliament and the European Union to agree on
an exit deal, a task his predecessor, Ms. May, found impossible.Ms May had to step down when UK and the EU agreed a second delay to Brexit, it is due to
happen on 31 October. Cross-party talks between the government and
Labour to try to find a compromise ended without an agreement.Theresa May repeatedly lost votes in the House of Commons on her deal.
Apart from that The debate over Brexit has prompted renewed talk about possible Scottish
independence and a united Ireland, raising questions about the
durability of the United Kingdom itself.
So what are the Options ?
1. Return of the previous deal
Mr Johnson going to push for returning of the previous deal by overruling the existing deal by Ms May although Brexit by october is still unlikely .
If MPs can't agree on anything else some MPs who
previously voted against the existing deal could switch sides to prevent
no deal or no Brexit.
2.Further delay
This is the most likely scenario right now . There's no legal
obstacle to a further delay. The new government could ask for additional
time - perhaps to hold another vote or to allow more preparations for a
no-deal Brexit.
It's not clear whether the EU would agree. It would have to be approved unanimously by all the other member state
3. No deal
No-deal Brexit is
still the default outcome if MPs can't agree anything else and there are
no further extensions. The deadline is 31 October.
It would also
be possible for MPs to back a no-deal Brexit although there has been a
majority against that option when they have voted on it before.After Borish johnson became PM the option is slim.In an interview, Tony Blair, a former Labour Party prime minister,
called a “no deal” Brexit a huge risk for Mr. Johnson as well as for
Britain.If blocked by lawmakers, Mr. Blair said, a failed attempt at a “no deal”
exit could force a general election or possibly a second referendum.
4.Another referendum
A further possibility is to hold another referendum.
It
could have the same status as the 2016 referendum, which was legally
non-binding and advisory. But some MPs want to hold a binding
referendum where the result would automatically take effect - like with
the 2011 referendum on changing the voting system for UK general
elections.
One widely discussed option would be for a
"confirmatory vote" on whatever deal is finally agreed where the public
would be given the choice between accepting the existing deal (or an
alternative plan) and remaining in the EU.
5. Cancel Brexit
The European Court of Justice has ruled that it would be legal for the UK to unilaterally revoke Article 50 to cancel Brexit (without the need for agreement from the other 27 EU countries).
It's
not totally clear what the process would be. But an act of Parliament
calling for Article 50 to be revoked would probably be sufficient.But is very very unlikely till Mr. Boris Johnson is PM .
Mr. Johnson has declined it completely, perhaps hoping to use the
threat as leverage in talks with E.U. leaders. But the costs of a “no
deal” Brexit would be four times as large for the British as for the
rest of the European Union collectively, one recent report found. The
European Union receives about 13 percent of Britain’s economic output,
while exports from the E.U. to the U.K. account for 2.5 percent of the
bloc’s output.
.
So whatever is going to be the case next few months are very crucial for Mr Johnson, UK and EU. Let us prepare for the worst and hope for the best.
