Crude Price Declines Might Be More Sharper Than Rising Prices, Says SBI report

Rising oil prices, which have risen by more than 21% in the last month to surpass $105 per barrel lately against the backdrop of the ongoing Russia-Ukraine geopolitical war, pose a problem for the Indian government and may disrupt its budgetary calculations.

If crude oil prices persist at the current inflated level generated by Russia's invasion of Ukraine, there are troubling indicators on the pricing front and the fiscal side of the government.

According to a State Bank of India (SBI) research report, if crude oil prices climb to an average of $100 (or $90 per barrel) from the present average of $74 per barrel, inflation is anticipated to rise by 52-65 basis points (bps) (32-40 bps).

Further, the government might experience a revenue loss of Rs 95,000 crore to Rs one lakh crore as a result of the hike in oil prices.

SBI believes diesel and petrol prices should have been higher by Rs 9-14 each by now, based on the present value-added tax (VAT) structure and a Brent crude price of $100 - $110 per barrel.

According to the analysis, it takes roughly 18 months for petroleum prices to drop by as much as 67 percent from their peak. According to the report, a 30% decrease from the maximum level may occur in less than three months. Thus, the decline in crude prices from the current high levels could come even faster going by the recent trends and it augurs positive for overall macro prognosis, the report said.