Contrasting Pressures Being Exerted On Oilpool Account

India's oil pool account is being pulled in two different directions after the terrorist attacks on the US on September 11.

While depreciation in the value of the rupee is threatening to increase the oil pool deficit considerably, it is being more than compensated by the softening of the crude oil prices in the international market.

The oil pool deficit could increase by around Rs 792 crore on an annualised basis just on account of depreciation of the rupee vis-a-vis the dollar after the terrorist attacks.

While on September 10, one day before the attack, a US dollar was quoted at Rs 47.35, it went up to Rs 48.01 last Friday -- a jump of 66 paise.

 

The Oil Coordination Committee (OCC) has calculated that every one rupee increase in the value of the dollar pushes up the oil pool deficit by Rs 100 crore on a monthly basis.

This implies that every time the dollar value increases by a paisa, the oil pool deficit increases by Re 1 crore on a monthly basis.

Therefore, an increase of 66 paise would imply that the oil pool deficit would go up by Rs 66 crore on a monthly basis, or Rs 792 crore on an annualised basis.

However, there has been considerable softening of oil prices after the attack. While on September 10, the price of a barrel of benchmark Brent crude was $27.18, it shot up to Rs 28.42 on the day of the attack, Rs 31 on September 12, and started coming down from September 17, when it was quoted at $27.91 a barrel, and on Friday last, it was quoted at $26.19 a barrel.

Therefore, there has been a fall of almost a dollar in the prices of Brent since the attack. As per OCC calculations, a fall of one dollar in the prices of crude oil results in a Rs 200 crore reduction in the oil pool deficit on monthly basis.

This implies that if prices continued to remain at the current level, India's oil pool deficit could come down by as much as Rs 2,400 crore on an annualised basis from the level prevailing on September 10.

This would imply that while India's oil pool account could go up by Rs 792 crore at the end of one year from now because of the fluctuations in the foreign current rates, it would come down by Rs 2400 crore because of the softening of crude oil prices.

Therefore, on the whole, the oil pool deficit could be lower by Rs 1,600 crore by the end of one year from now.

However, since only six months are left for the scheduled dismantling of the administered pricing mechanism (APM) in the oil sector and the winding up of the oil pool account, the oil pool deficit could shrink by Rs 800 crore by the end of the current fiscal, only if the dollar and crude price remain stationary around their last Friday's levels.