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Will plunging oil lead to overall boost in global economy by delivering windfall to consumers, manufacturers


News From Petrochem Majors In India
* The West Bengal state government represented by West Bengal Industrial Development Corporation (WBIDC) finally decided to offload its 520 mln shares (30.8%) in favour of The Chatterjee Group (TCG) matching the price of Rs 25.10 per share quoted by Indian Oil after the government invited an expression of interest (EoI) last year. But the lenders were reluctant to infuse fresh funds because the control had not been transferred to TCG due to Chatterjee's inability to pay the first instalment though the share-purchase agreement had been signed between the promoters.
* ONGC Petro Additions Ltd (OPAL)'s US$4 billion integrated petrochemical complex in Dahej (having capacity to produce 1.1 mln ton of ethylene and 400,000 ton of propylene) is scheduled to be commissioned in Q1-2015.
* The proposed grassroot refinery by Indian Oil Corporation Ltd at Paradip Petroleum Chemicals and Petrochemical Investment Region (PCPIR) in Odisha will be further delayed from end of 2014, and is now likely to be commissioned in 2015.
* Hindustan Petroleum Corporation Limited (HPCL) has revived its plan to set up Rs 10,000 crore for upgradation of Vishakh refinery from 7.5 to 15 MMTPA. It has re-started the feasibility study with the help of another partner Gas Authority of India Ltd ( GAIL) and Engineers India ( EIL).

Oil Demand Outlook in 2015
Oil demand will pick up because of the lower price, and supply will grow less quickly. But how fast it will rise, and to what level, is hard to say.
CHINA: Growth in demand for refined oil products collapsed in 2014, with the world's largest economy showing only a 1.1% increase over the past 12 months. ICIS China Annual Petroleum Report, due for release in January 2015, calculates Chinese oil demand to have hit 503 mln tons this year- representing the slowest growth rate since 2000. Net imports of refined products have meanwhile fallen by 43% y-o-y as China's refining industry has ramped up production, and overall dependence on imported products is at just 2%. In part, the slowdown in oil products demand growth is due to slower economic growth in 2014 at 7.5%. However, it is also the effect of the country's ongoing shift from heavy industry to lighter industry, service industries, and its focus on urbanisation. Actual Chinese crude oil imports have continued to rise strongly over 2014. The analysis shows overall crude imports hitting 300 mln tons for the year, up 7.8% on 2013. The growth in crude, however, is primarily driven by a major Chinese government initiative to build a strategic crude oil stockpile, which aims to build stocks to 70 million cubic metres by the end of 2020.

RUSSIA: Is hugely dependent on oil and gas production - with oil revenues making up 45% of the government budget. Economists estimate Russia's GDP will shrink at least 4.5% in 2015, if oil stays at US$60 per barrel. Plunging oil has also caused the ruble's value to collapse, leading to panic inside Russia and a rise in inflation, as imports become drastically more expensive. Many Russians, worried about the steadiness of their savings are spending on cars, electronics- anything that has more lasting value than the currency. So far, Russia's central bank has been struggling to deal with this crisis. On December 15, the country suddenly hiked interest rates from 10.5% to 17% in an attempt to stop people from selling off rubles. But the ruble kept declining anyway, and some economists are now raising the possibility of a larger financial crisis.

IRAN: Iran's economy had recently started to rebound after years of recession. Iran needs oil prices well north of US$100 per barrel to balance its budget, especially since Western sanctions have made it much harder to export crude. If oil prices keep falling, the Iranian government may need to make up revenues elsewhere-by paring back domestic fuel subsidies.

VENEZUELA: There is growing concern that the oil crash could cause Venezuela, another major oil producer, to default. The nation's economy is heavily dependent on oil revenue and is set to shrink some 3% this year and inflation is rampant.

SAUDI ARABIA: Oil price makes up more than 90% of public income in Saudi Arabia. The kingdom has announced a 2015 budget with a huge US$38.6 bln deficit due to the sharp decline in oil prices, but still raised spending. A statement said spending for 2015 is projected at SR 860 billion US$229.3 bln) and revenues at SR 715 billion US$190.7 bln). This budget shortfall is the first deficit projected by the OPEC kingpin since 2011 and the largest ever for the kingdom. If oil stays at around US$60 per barrel in 2015, the government will run a deficit equal to 14% of GDP. The kingdom has built up a stockpile of foreign currency worth some US$740 bln, which it will use to finance its deficits. If they decide to run a deficit for a while, they could handle it.

Indian Economic Growth Forecast
Indian economy is expected to pick up pace in 2015 and grow in the range of 5-6% , helped by strong domestic demand, as per rating agency Moody’s. GDP growth is expected at 5% in 2014. The country has benefited from a strong domestic demand base and diversified export markets that give protection from the effects of a slowing Chinese economy and muted growth in the Euro zone and Japan. Employment and consumption are likely to rise in India, and the fall in global commodity prices will help to lower high inflation in the country. A factor behind the forecast of India's performance is that it is “likely to make progress in implementing economic policy reforms, thus providing support to business and consumer confidence”. Despite real GDP growth slowing to 5.3% y-o-y in the second quarter of FY 2014-15 (quarter ending September), the outlook for the Indian economy remains strong on the back of the government's pro-growth agenda and private consumption which will remain resilient. Business Monitor Index (BMI) maintains its forecast for real GDP growth to accelerate to 5.6% in 2014-15 (April-March) from 4.7% in 2013-14. The main drivers of the above-consensus growth this quarter came mainly from two areas, namely private and government consumption. The agricultural sector held up well, expanding by 3.2% yoy despite a poor monsoon season. The power sector remains in solid shape, with electricity growing at 8.7% y-o-y, mining sector remains resilient. However, the manufacturing sector performed poorly, increasing by only 0.1% y-o-y this quarter versus 3.5% y-o-y in the previous quarter. Over the coming months, BMI expects foreign direct investment (FDI) into India to be buoyant as investors remain positive on India's growth prospects and the government continues to promote greater inflows into various sectors of the economy. These new rules will help to encourage the development of smaller projects in urban areas, which is in line with the government's efforts to build 100 new 'smart cities' by 2020. The upgrading of existing infrastructure in tier one and tier two cities will also require greater investment by domestic construction materials manufacturers as they ramp up production to meet demand. The e-commerce sector is also likely to see increasing FDI as investors look to take advantage of India's growing middle class, relatively young population and their increasing access to the internet. This will provide support to the services sector, which accounts for approximately 60% of the economy.

The Year 2015
"Positive fundamentals are in place for the momentum in the global economy to improve during 2015," said Chief Economist at IHS, which expects global growth to pick up to 3% from an estimated 2.7% this year

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