Price of crude oil rises due to rupee weakness

The steep decline in the value of Indian currency raised the price (in rupee terms) of crude oil imported by India.

Further, global factors like higher demand, low OPEC spare capacity and improved economic outlook for 2013 raised the price of crude oil in dollar terms.

For example, the Brent crude oil futures rose to a two-year high of $110.51 a barrel recently. Brent for sweet grade has a 31.8 per cent weight in the Indian basket.

Traders feel that a large part of the rise in the price of the domestic basket of crude oil is attributed to rupee depreciation in July. The Indian rupee touched an all-time low of 63 per dollar in a recent trading session.

The benchmark Indian basket, which also gives Oman and Dubai sour grades a weight of 68.2 per cent, had seen an all-time high on monthly average In July 2008, when it touched $132 a barrel in dollar terms.

Official estimate shows that the under-recovery of oil marketing companies (OMCs) will increase by Rs 8,000 crore for every rupee fall against the dollar.

But every dollar increase in crude oil prices would add Rs 4,000 crore to under-recovery.