International prices of Brent Crude oils have fallen more than 30 per cent since June, 2014 from $115 per barrel to a low of $79 per barrel in November. This has happened mainly due to fall in oil demand from 93.4 million barrels per day in June, 2014 to 92.1 million barrels per day in September, 2014 whereas the supply of crude oil during the same period increased from 91.3 million barrels per day to 95 million barrels per day (Source: Quantum Mutual Fund, Bloomberg). Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide.
The prices are expected to remain low in the near future due to the low expected global growth thus leading to bleak demand whereas supply is still expected to grow. Since India depends on import for 80 per cent of its crude oil needs therefore, the fall in the crude oil prices will not only help to bring down the fiscal deficit but will also increase the chances of positive ratings for the economy. However, the falling crude oil is good news for many companies but at the same time bad for some of them.
Oil marketing companies have given good stock return since the crude oil prices started to falling down. This is because their import bill will fall down. On the other hand the companies engaged in the oil extraction have fallen because they will now realise a lower price for each barrel of the oil they sell as their selling price is closely linked to the international prices.
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