Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
· Global markets, already teetering from the impact of the coronavirus, received a jolt over the weekend as Saudi Arabia cut oil prices and declared its intention to increase output well beyond what the oil market can absorb currently.
· Oil prices crashed overnight by almost a third to $31 a barrel consequent to the kingdom slashing prices and announcing its intent to increase output.
· While a fall in prices is good news for major consumers such as India and China which depend on imports for a major part of their oil needs, it may be bad news for the big oil companies and the smaller shale oil players who are highly leveraged.
· A collapse of these shale oil producers may set off defaults in the bond markets, setting off its own non-virtuous spiral starting with the U.S. markets.
· For India though, the sharp dip in oil prices is good news, for now. This will reduce the oil import bill at a time when merchandise exports are likely to suffer due to the freeze in the developed economies.
· This will keep the current account deficit balanced. The fall in fuel prices will also drag down headline inflation giving the Reserve Bank of India elbow room to cut rates.
· But the oil price fall may be bad news for the Centre’s disinvestment programme as the sale of Bharat Petroleum Corporation Limited (BPCL) could run into headwinds.
· Big oil companies, which are widely expected to bid for BPCL, may either shy away from it or their bids may be much lower than expected as the company’s valuation may drop.
· In such an eventuality, it is quite possible that the government may step in to grab a slice of the windfall from falling prices, through higher excise duties to compensate for the loss from disinvestment proceeds.
