03-08-2012, 03:29 PM
Impact of Rupee Depreciation on Oil Industry
Impact of Rupee Depreciation on Oil Industry_1.docx (Size: 213.24 KB / Downloads: 39)
An introduction to oil industry in India
After the Indian Independence, the Oil Industry in India was a very small one in size and Oil was produced mainly from Assam and the total amount of Oil production was not more than 250,000 tonnes per year.
This small amount of production made the oil experts from different countries predict the future of the oil industry as a dull one and also doubted India's ability to search for new oil reserves. But the Government of India declared the Oil industry in India as the core sector industry under the Industrial Policy Resolution bill in the year 1954, which helped the Oil Industry in India vastly.
Oil exploration and production in India is done by companies like NOC or National Oil Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the oil companies in India that are owned by the government under the Industrial Policy Rule. The National Oil Corporation during the 1970s used to produce and supply more than 70 percent of the domestic need for the petroleum but by the end of this amount dropped to near about 35 percent. This was because the demand on the one hand was increasing at a good rate and the production was declining at a steady rate.
Oil Industry in India during the year 2004-2005 fulfilled most of demand through importing oil from multiple oil producing countries. The Oil Industry in India itself produced nearly 35 million metric tons of Oil from the year 2001 to 2005. The Import that is done by the Oil Industry in India comes mostly from the Middle East Asia.
The Oil that is produced by the Oil Industry in India provides more than 35 percent of the energy that is primarily consumed by the people of India. This amount is expected to grow further with both economic and overall growth in terms of production as well as percentage. The demand for oil is predicted to go higher and higher with every passing decade and is expected to reach an amount of nearly 250 million metric ton by the year 2024.
Some of the major companies in the Oil Industry in India are:
• Oil India Ltd.
• Reliance industries
• Bharat Petroleum Corporation Limited
• Hindustan Petroleum
Impact of Rupee Depreciation
• A depreciating rupee makes import of Crude oil more expensive which directly leads to an increase in the operating expense of the companies.
• Thereby hitting their profit margins.
• For the consumers, a constant rise in import prices of crude oil would mean an increase in petrol prices.
Conclusion
Global rating agency Moody's said the rapid decline in rupee's value against the US dollar will impact oil companies besides raising the overseas debt servicing cost of domestic companies.
"The sharp decline in the value of the Indian rupee is generally exerting a moderate impact on rated Indian companies with the country's largest oil refining and marketing company, Indian Oil Corporation, facing the biggest challenges," Moody's Investors Service report said.
As regard to the private-sector refining companies, it said they may benefit from rupee depreciation as these firms sell the refined products via import-parity pricing.