Factor affecting crude oil price

World oil demand

World oil supply
Weather conditions
Government policy
Political Conditions
Futures Market

Subsidy
Indias subsidy bill zoomed to Rs 2.16 trillion or
2.5% of GDP .
It was due to two reason:
High Crude Oil prices
Fertilizer subsidies, primarily on account of
imported non-urea fertilizers.
Last year budget government pegged curde oil
price of brent at $90. This year they kept the
same at $115.
Next year government has reduced the budgeted
amount for oil subsidy to Rs43580 crore.

Crude Oil Subsidy

78% jump

Source: Budget document

Impact of increase in oil prices on

growth and inflation levels in India
GDP=Private Consumption + Gross Investment + Govt Spending +
( Export Import).
International Increase
Extent of
Extent of
Extent of
oil
in
fall in
fall in
increase in
prices per
international manufacturi GDP growth
WPI (%)
barrel ($)
oil prices
ng sector
(%)
(%)
(%)
50

38.9

2.1

0.4

1.5

60

66.7

9.7

1.9

3.6

70

94.2

16.9

3.4

5.7

122.2
24.5
4.9
Source:Extractive Industries
for 7.3
126.1
29.7
Development Report

7.9

80
140

7.2

Inflation
Crude oil price move up or down, inflation
follows in the same direction.
Crude oil price increases, its directly
affects the rate inflation. When the prices
went to high of more than $100/barrel in
2008, the inflation also went up to 12.27%
which was highest for India in previous two
decade.

Effects on Transportation
7%
14%
5%

Transport
Electricity and Heating

13%
61%

Non-Energy
Industry

Other sector

Source:- Report of the Working Group on Petroleum & Natural Gas

Sector for the XI plan (2007-2012)

 The transport sector is clearly dominant in

petroleum product consumption.
Transport sector consumes 60% of total
petroleum products.
Road transport accounts for an even
higher percentage of energy consumption.

Steps taken by the govt. and RBI

What Govt. did ?
1. Provided huge amount of subsidies to oil
companies to keep them solvent.
2. This increased domestic prices of diesel and
petrol.
3. Start looking for alternate energy options to
prevent future oil shocks.
What RBI did?
Increase in CRR, Repo rates.
(i.e. used monetary tools to calm down the heat)

Conclusion
To summarize the study
When Oil prices Moves UP :
1.Inflation increases
2.Govt. spending on subsidy increases
3.Foreign currency reserves reduce
4.Our export becomes weaker
5.GDP is affected negatively
6.Share market crumbles
7.Investment decreases

Supply and demand

Supply And Demand

Technological shift from vertical to horizontal drilling
in US led to it becoming a producer from a consumer.
Major boom in shale gas production causes the
production increase by 0.9 million barrel per day.
Between July and Dec 2014 alone, the projected
oil demand for 2015 is downwards by 0.8
million barrel per day.
TheUSis producing record amounts of oils plenty of
supply out ofOPECandRussia. But theres not
enough demand from developing economies like
ChinaandIndia to consume all the oil thats being
supplied.

 A global recession has left Asian demand

weaker than expected, and governments
are slashing fuel subsidies acrossAsia.

Its not just Asia, though. Austerity

measures and decreased consumption
acrossEuropeare curbing oil demand
throughout that continent, too.

Role of OPEC

OPEC coordinates and unifies the petroleum policies of its

members.

In 2014 OPEC comprised 12 members: Algeria, Angola,

Ecuador, Iran, Iraq, Kuwait,Libya,Nigeria,Qatar,Saudi Arabia,
theUnited Arab EmiratesandVenezuela.

OPEC member countries produce about 40 percent of the

world's crude oil.

Equally important to global prices, OPEC's oil exports represent

about 60 percent of the total petroleum traded internationally

OPEC's surprising response: Let prices keep

falling

On November 27, a big meeting was held by the Cartel,

and countries, like Venezuela and Iran, proposed that
the Cartel (mainly Saudi Arabia) decreases oil
production in order to maintain stability in the oil prices.

Just to ensure it maintains its market share, Saudi

Arabia, the world's largest oil producer, did not agree to
reducing oil production and was willing to let prices
plummet.

 Oil prices continued to slip onwards of September 2014 .

(remove it)
During the November 27, 2014 Vienna meeting of OPEC
countries the major oil producing members like Saudi
Arabia and Iran, did nothing to arrest the falling price.
Some countries, like Venezuela and Iran, wanted the cartel
(mainly Saudi Arabia) to cut back on production in order to
prop up the price. These countries need high prices in
order to "break even" on their budgets and pay for all the
government spending.
On the other side Saudi Arabia, the world's second-largest
crude oil producer,which was opposedto cutting
production and seemed willing to let prices keep dropping.
In the 1980s, when prices fell and the country tried to cut
back on production to prop them up. The result was that
priceskeptdeclining anyway and Saudi Arabia simply lost
market share.

"We will produce 30 million barrels a day for the next 6

months, and we will watch to see how the market
behaves," said OPEC Secretary-General Abdalla ElBadri.

 That caused the price of oilto start crashing even further.

The price of Brent crude went from $80 per barrel to $70 per
barrel in just a few days. And it kept tumbling to down below
$60 per barrel by mid-December and $50 by January.
OPECis now engagedina "price war" with the US.

It's relatively cheap to pump oil out of places like Saudi

Arabia and Kuwait. But it's more expensive to extract oil from
shale formations in places like Texas and North Dakota.

So as the price of oil keeps falling, some US producers may

become unprofitable and go out of business. And the price of
oil will stabilize. At least that's what OPEC members hope.

Strengthening Dollar
Across the globe the crude oil is bought and sold in dollars.
Dollar getting stronger makes oil more expensive to buy in countries
outside the US. That, in turn, weakens worldwide demand and further
puts downward pressure on oil prices.
high estimates suggest that a 10 percent appreciation is associated with
a decline of about 10 percent in the oil price, whereas the low estimates
suggest 3 percent or less.
Even though global oil prices are falling, theyre falling less for
countries with currencies that are weaker than the US dollar.

Legal Aspects Of Oil And Gas

Industry
Oil and Gas sector is divided into 3 parts
Upstream
Midstream
Downstream
Upstream Sector
The upstream sector is also known as the Exploration and
Production of Oil and Gas. following are the laws which are
directly related to the upstream sector.

Constitution of India Jurisdiction to regulate oilfields vested with

Central Government CoI: Entry 53 of List I "Regulation and
development of oilfields and mineral oil resources; petroleum and
petroleum products CoI: Entry 25 of List II "Gas and Gas Works.

Legal Aspects Of Oil And Gas

Industry
Midstream
The midstream industry processes, stores, markets and transports
commodities such as crude oil, natural gas, natural gas liquids
(LNGs, mainly ethane, propane and butane) and sulphur.
Generally midstream is clubbed with downstream industry.
Downstream

The downstream sector includes oil refineries, petrochemical

plants, petroleum product distribution, retail outlets and natural
gas distribution companies.
The total refinery crude throughput during 2009-10 at 160.03
million metric tonnes is 0.46% lower than 160.77 million metric
tonnes crude processed in 2008-09 and the prorate capacity
utilization in 2009-10 was 89.92% as compared to 107.43% in
2008-09.

Legal Aspects Of Oil And Gas

Industry
Oilfields (Regulation and Development) Act,
1948
Basic enabling statute for licensing and leasing of
petroleum and gas blocks by the appropriate
government. Covers mineral oils which are
defined as including natural gas and petroleum
[S.3(c)]. Mining lease is defined exhaustively to
cover all forms of exploring and exploiting
mineral oils and all purposes connected thereto
[S.3(d)]
Empowers central government to make rules with
regard to mining leases [S.5]
Also empowers central government to make rules
for the development of mineral oil

Legal Aspects Of Oil And Gas

Industry

Petroleum and Natural Gas Rules, 1959

Rules provide framework for grant of exploration licenses
and mining leases
Salient features of the Rules :
Prohibition on prospecting and mining except under a
license or lease granted under the rules [Rule 4]
Central Government has the power to grant licenses or
leases in respect of any land vested with it or minerals
underlying the ocean within the territorial waters or the
continental shelf [Rule 5(i)]
State government has power to grant license or lease
over lands vested with it [Rule 5(ii)]
Person obtaining exploration license obtains the exclusive
right to a lease for producing (i.e. extracting) oil/gas over
any part of area covered in license

Legal Aspects Of Oil And Gas

Industry
Land acquisition Act, 1894

The law deals with the acquisition of land for Public

purpose. The Act is a general Act which deals with the
procedure and the conditions under which a land can be
acquired.
The only requirement is that the land can only be acquired
for public purpose as per Section 3(f) of the Act.

The Petroleum Act, 1934

The act deals with import, transport, storage, production,

refining, and blending of petroleum. The Act is one of the
oldest acts in the oil and gas sector. Earlier to this act the
rules regarding the above specified activities were separate
for separate States.
The Petroleum Minerals Pipelines (Acquisition of Right of

TAXATION

Petroleum Product Pricing

Taxation comparisons
In April 2002 India abolished the
Administrative Pricing Mechanism (APM)
controlling the domestic price of petroleum
products in India. Under the APM, product
prices were directly administered by Indias
Central Government based on an opaque
and complex cost of operating capital plus
formula.

Effect of Taxation and Subsidies: A Comparison

The effect of lower product prices than

input prices - a large effective subsidy has
been the increasing accumulation of underrecoveries by OMCs. Under-Recoveries
represent the difference between the tradeparity cost of Refined product paid by OMCs
and their realised
change
frequently
depending on a number of factors.

Taxes paid by Oil and Gas Industry

over the years
(Rs. Billion)
Royalty from
Crude Oil

2006

2007

2008

2009

2010

50.67 58.57 65.44 71.55

NA

Royalty from Gas

8.637 10.75 14.87 16.24

NA

Oil Development
Cess

51.96 71.77 71.56 68.86 65.59

Excise and
Customs Duties

631.43 718.93 783.73 705.57 717.67

Sales Tax

459.34 539.49 564.45 633.49 649.99

Conclusion
The Indian oil and gas sector is one of the six core
industries in India and has very significant forward
linkages with the entire economy. Government
has taken many steps to regulate it. The Steps are
also taken to increase the Indigenous oil and gas
reserves.
Although there are few loopholes which should be
taken care of as soon as possible, one major
drawback in the E&P sector is that the Regulatory
Body (DGH) does not have any statutory value.
The decisions of the DGH are merely advisory in
nature and the Government is not to follow them.

FOR ENVIRONMENT SEE

THIS LINK

http://www.slideshare.net/sandeep71
62/analysis-of-environmental-impacton-oil-gas-company

Today environmental factors are one of the most important

factors in the oil industry. The environmental analysis has to
focus more on critical issues inbuilt in cleanups programs as they
affect the refining process in todays oil industry. The
environmental monitoring also affects the transport systems,
storage, recovery options and utilization.
The oil spills from the tankers affects the ecosystems and
damages it. Oil spills in sea is more damaging when compared to
the oil spills on land. It destroys the marine life and to control
these oil spills the government is taking initiatives. The control of
oil spills is quite difficult because it requires complicated methods
and a very large amount of manpower.
Many environmental engineers and environmental scientists are
working together by the use of productive methods for the
improvement of environmental effects, waste disposal and waste
management.
The government is very strict in a check list which includes:
gaseous emissions, solid waste and liquid effluents.