Brent falls below $50 per barrel for the first time in five-and-half years

Brent crude, the price benchmark for more than half the world's oil, fell below $50 per barrel today for the first time since 2009, on continued oversupply coupled with a slump in demand in the international market.

A strong Dollar and OPEC's insistence on maintaining market share have further aided the oil price crash, beefing up prospects for emerging economies like India which rely heavily on crude oil imports to meet their energy needs. However, the price slump is likely to hit chief exporters including Russia.

Brent North Sea crude for February delivery dived to $49.81 per barrel in morning London deals, a level last witnessed in mid-2009. US benchmark for oil, West Texas Intermediate (WTI), had already slumped below the $50 per barrel mark on Monday after Saudi Arabia cut its European and US prices to maintain market share.

INDIA IMPACT

For consumers, the price crash translates into gross annual savings of Rs 48,000 crore on fuel cost of transport. This includes Rs 28,800 crore savings for truck owners, Rs 9,000 crore savings for petrol car owners, Rs 8,600 crore for two-wheelers and Rs 800 crore for diesel car owners.

"The savings in fuel prices will increase the discretionary spend by consumers, leading to a pickup in India's consumption. As per our estimates, Rs 48,000 crore will be saved annually (roughly 0.4% of GDP), if the current crude oil prices sustain," equity research firm Edelweiss said in a report. Petrol prices at retail pumps have come down by 17% to Rs 61.33 per liter from their peak of Rs 73.6 per liter in June last year. Also, diesel prices too have been reduced by 13% since then.

For the government, the oil price crash means reduced pressure on Current Account Deficit (CAD). It will also help create a healthy foreign exchange reserve which will boost the Rupee's stability against the Dollar. India imports over 70% of its crude oil requirement - 3.8 million barrels of oil per day (bpd).

The Indian basket of crude oil price has averaged $97.5 per barrel in the current financial year so far as against $107 per barrel last financial year. This $10 per barrel fall in average price has already saved the country around $6.5 billion - roughly a fifth of last year's CAD of $33 billion. "If crude oil remains at $60 a barrel level for the rest of FY15, India would save another $12.5bn over the next three months. Total savings for FY15 would be around 0.9% of GDP," Edelweiss said.

The new government had allotted Rs 63,000 crore as petroleum subsidy for the current financial year, as against Rs 85,000 crore last fiscal, aiming to rein in fiscal deficit at 4.1% of GDP. The petroleum subsidy would account for 3.5% of the government's total expenditure in the current fiscal as against 5.4% last fiscal, the decline mainly on account of diesel deregulation.

However, the crude price crash in play has pulled down losses on Kerosene and LPG sales to less than the budgeted estimates. Therefore, analysts now believe total fuel subsidy could be much lower than the budgeted mark of Rs 63,000 crore. Oil Marketing Companies are currently losing Rs 19.46 per liter on subsidized Kerosene and Rs 235.91 on every 14.2 Kilogram cylinder of subsidized cooking gas.