OPEC move to hold output augurs well for Indian economy_OPEC move to hold output augurs well for Indian economy

OPEC move to hold output augurs well for Indian economy

May 31, 2024

Crude oil prices plummeted 40% from 2014 compared to June 2014 levels after 12 OPEC, which consists of individual oil-producing countries, decided to block India’s production cuts.

This bodes well for India’s economy, as the country relies on imports for nearly 80% of its crude oil. Profitability of companies that use crude oil or derivatives as feedstock is expected to improve.

According to Nomura Stockbrokers, a $10 per barrel drop in oil prices would result in a slight increase in India’s GDP by 0.1% and a 0.5 percentage point drop in the wholesale price index. The financial deficit would decrease by 0.1% and the account deficit by 0.5%.

With less dependence on subsidies, profitability of oil marketing companies like HPCL, BPCL and IOC will improve. This will reduce working capital loans of these companies and increase marketing profits.

Automobile companies will also benefit. Historically, lower vehicle ownership costs have led to higher sales growth. Wall Street believes that Maruti Suzuki is most likely to benefit from lower fuel prices.

Castrol India, Gulf Oil, Savita and Apa Industries lubricant makers will benefit as the raw material cost share is close to 60%.-65% of sales are linked to crude oil prices. However, since lubricants are primarily retail products, lower raw material costs tend not to be passed on to consumers.

Similarly, crude oil and its derivatives, which account for about 30-40% of total raw material production costs for coatings companies, will also pay dividends.

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