Oil Price Jump Chases Bond Investors Out Of India

Rising oil prices have weighed down the Indian rupee, making it the worst currency performer in Asia. As a result, bond investors, bond holders are dumping Indian debt at record rates, Bloomberg reports.

Since January, bond investors have sold US$4.5 billion worth of Indian debt as oil benchmarks rose faster and Brent hit US$80 a barrel two weeks ago, the highest in almost four years. India imports some 80 percent of the oil it needs and every US$10 increase in the price of the commodity raises India’s inflation by 30-40 basis points, reducing its current account balance by 0.4 percent of GDP, Nomura Holdings has estimated.

The country, which most observers see as the biggest driver of global oil demand growth in the near to medium term, has been actively seeking ways tor educe its dependence on imports, but success is slow to come given the degree of dependence.

But India may have been instrumental for OPEC’s stated intention to start ramping up production to put a lid on the price rise. Petroleum Minister Dharmendra Pradhan recently called on his Saudi counterpart to take action on prices, which at US$80 were unreasonable.

Indeed, from India’s perspective US$80 for a barrel of crude is hurting the economy, in stark opposition to oil bulls that argued Brent needs to breach US$100 a barrel before it starts affecting demand.

Last month, India reported its trade deficit had reached the highest in three months because of higher oil prices. At US$13.7 billion, the deficit was lower than the estimate of several analysts polled by Bloomberg, but it was still the highest since the end of 2017 given that growth in non-oil imports slowed to a 16-month low.

This year, the country’s oil ministry has calculated it would need to import 1.61 billion barrels (219.15 million tons) of crude, which at current Brent prices would mean a bill of US$127.19 billion. The bondholder exodus will likely continue.

By Irina Slav for Oilprice.com

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