The Reserve Bank of India (RBI) has reaffirmed its projection for the Indian crude oil basket price to stay at $85 per barrel in the second half of the current financial year, despite substantial global production cuts announced by OPEC, Saudi Arabia, and Russia through the end of the year. In its Monetary Policy Report for October, the RBI cited economic uncertainty due to geopolitical tensions and discrepancies between global petroleum product prices and crude prices as reasons for this decision.
Upside Risks to Global Crude Prices
While the RBI maintains its Indian crude oil basket projection, it acknowledges potential upside risks to global crude prices. These risks include an escalation of geopolitical hostilities, further supply cuts by OPEC, and strong demand. If crude oil prices rise by 10% above the baseline, the RBI predicts a 30 basis point (bps) increase in domestic inflation and a 15 bps weakening in growth.
OPEC’s Role in Future Prices
The market’s attention will be focused on OPEC’s upcoming decision regarding extending output cuts beyond December, with the meeting scheduled for November 26. OPEC has expressed its commitment to closely monitoring market conditions.
Factors Affecting Crude Prices
The report also highlights factors that could pull down crude oil prices, such as increased supply from non-OPEC countries, de-escalation of geopolitical tensions, and reduced demand due to aggressive monetary policy measures by central banks. If crude oil prices fall by 10% relative to the baseline, and these changes fully pass through to domestic product prices, the RBI anticipates a 30 bps reduction in inflation and a 15 bps boost to growth.
Recent Price Trends
Crude oil prices experienced fluctuations in the first half of the financial year 2024, with a decline in April followed by a recent increase due to production cuts by Saudi Arabia and Russia. However, the prices have moderated to around $85/bbl. Crude inventory data in the US, one of the major crude consumers, continues to influence price dynamics.
RBI’s Policy Stance
The RBI has chosen to keep its policy repo rate unchanged at 6.50% during its latest meeting. RBI Governor Shaktikanta Das emphasized the uncertain global scenario and the importance of not making hasty decisions in response to fluctuating crude prices.
In summary, while the RBI maintains its Indian crude oil basket projection at $85/bbl, it remains vigilant regarding potential global factors that could impact crude prices, acknowledging the need for flexibility in monetary policy in an uncertain environment.