Brent crude prices bounced above $90 a barrel on Friday on short-covering, but with ample supply and tepid demand, oil prices will continue to remain under pressure. India’s current account deficit position is expected to see considerable improvement if crude oil prices remain low.
“If the price of Brent oil remains close to $90 per barrel for the remainder of this fiscal year and FY15-16, we estimate that the current account deficit could improve by an annualized 0.4% of GDP (gross domestic product)," said a recent note from Barclays Research.
The chart shows current account deficit projections for the current fiscal and the next, based on various levels of average crude oil prices for FY15 and FY16.
Madan Sabnavis, chief economist of CARE Ratings, says a sustained $10 per barrel correction in crude oil prices for a year will lead to an annual improvement in the current account to the tune of $14-15 billion, which is a significant amount of relief. A decline in global crude prices also leads to lower losses on selling fuel below cost for the sector and reduce inflationary pressures.