SDMIMD Journal of Management

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Crude oil price fluctuation has become an emerging topic for the developing and oil importing countries. India is not an exception. Crude oil can be considered as one of the most influential natural resources in the world economy. Crude oil import dependency is one of the major economic issues for most of the countries. However, the oil exporting countries take this opportunity to perpetuate their economic power. Thus, the crude oil price fluctuation influences not only the oil importing and exporting countries but also the entire world economy in a significant way. Prime Minister Narendra Modi’s recent United States of America (USA) visit has brought a noteworthy transformation in India’s crude oil import trend. India has started importing crude oil from the USA. This recent phenomenon has enhanced the significance of this study to a greater extent as the composition of Indian basket crude oil price will be affected. The current Indian basket crude oil price is a composition of Dubai and Oman sour crude oil price and Brent sweet crude oil price benchmark. Probably, this composition is going to change in the near future. In this note, it is important to understand, how the global factors can influence this price benchmark. The paper aims to find out the factors influencing Indian basket crude oil price changes. Moreover, the paper attempts to investigate the impact of this price fluctuation on Indian economy. Overall, this study intends to explore the causes and consequences of international crude oil price changes of Indian basket. Assessing this cause and effect relationship requires a long term historical data set. Hence, the time frame of the research work has been considered from the financial year 2000-2001 to 2016-2017. Monthly data frequency has been employed for this research work. Oil Spreadsheet Model has been referred to understand the supply-demand mechanism which can be considered as the base for identifying the global factors, influencing Indian basket crude oil price changes. Econometric techniques (Granger Causality Test Model) have been adopted to understand the cause and effect relationship of this price fluctuation. It has been found that Organization of the Petroleum Exporting Countries (OPEC) and Brent crude oil prices have a bi-directional effect on an International crude oil price of Indian basket. On the other hand, the Indian basket crude oil price granger causes Gross Domestic Product (GDP). Several studies have been conducted to understand the connection between international crude oil price volatility and macroeconomic factors. However, minimal research work has been taken place to establish the same association with Indian basket crude oil price. Moreover, insignificant exploration has been noticed to investigate the global factors, influencing Indian basket crude oil price changes. In other way, it can be said that like other international crude oil price benchmarks, Indian basket crude oil benchmark has not been studied much. This paper attempts to reveal the influential factors associated with Indian basket crude oil price changes. Thus, it brings novelty in this field of research.

Keywords

Indian Basket Crude Oil Price, Price Fluctuation, Indian Economy, Import.
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