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We all are constantly hearing that the May contracts of WTI crude (West Texas intermediate) which produces crude oil is trading at -$40 per barrel while the June contract is at $5 per barrel. Apart from the reduced demand for oil due to worldwide lockdown, such a drastic decrease in prices is due to the unwinding of futures contracts by traders.

India sources most of its oil from OPEC and its benchmark is Brent crude, and Brent prices have fallen to about USD 9 per barrel from a high of about USD 70 at the beginning of 2020. This decline in oil prices is likely to save about Rs 4 lakh crore in the current financial year FY21. Such savings will enable the government to take the required steps to boost the economy once the lockdown opens.

Already Shri Nitin Gadkari has made statements that the infrastructure projects will continue to get awarded. Sectors that are dependent on oil prices will also benefit. For example, airlines are bearing the brunt of the current lockdown but they will also be a major beneficiary of lower oil prices once operations resume. Similarly, many manufacturing companies have high energy cost and they should also benefit.

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Team Nivesh