Crude oil touches $50, India pays 8% less; here’s why

India’s crude oil basket was valued at $46.38 per barrel on June 1, 2016. Image Source: Reuters

Crude oil has touched $50 to a barrel and many experts believe that $50-$60 per barrel is now going to be the average price of crude oil.

Although this is nearly 50% higher from its lows of last year but this is also lower than half of its two-year peak of over $100 per barrel.

Interestingly, India’s crude oil basket was valued at $46.38 per barrel on June 1, 2016.

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So, why does India enjoy a discounted price for oil in the international market?

Here’s the answer.

India buys its oil from many sources. In 2014, Nigeria became the lead supplier of oil to India while Iran too has enjoyed this position on a few occasions.

The Indian crude oil basket is largely made up of weighted average price of Oman and Dubai sour crude price benchmarks and Brent sweet crude price benchmark.

The ratio of these two benchmarks keep changing as per the imports of India’s domestic and private sector oil refiners.

However, sour crude oil has a high sulphur content. Sulphur is considered to be an impurity and this is the reason why the cost of this barrel of oil is cheaper.

Although, Indian private sector oil refiners are one of the largest and best in the world. This is the reason they can buy cheaper oil with high sulphur content and are still able to break it into various oil products.

Cost of Indian basket of crude, last year, peaked at $63.82 in May and touched a low of $28.08 in January this year.

The year’s average stood at $46.17 per barrel, Petroleum Planning & Analysis Cell data showed.

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