Impact of crude oil price volatility in Indian

Oil and gas Industry

Dissertation submitted to College of Management & Economic
Studies for the partial fulfillment of the degree of

BBA (OIL AND GAS MARKETING)

(2014-17)

Guided by:
DR. ANKUR MITTAL

College of Management & Economic

Studies

University of Petroleum & Energy

Studies

Dehradun 248 007

Submitted by:

AYUSH SINGHAL

Enrollment No: R170214011

SAP ID: 500036953

College of Management & Economic Studies

University of Petroleum & Energy Studies,

 Dehradun, Uttarakhand, India

Acknowledgment

This Under-Graduation BBA dissertation has been written at the division of

College of Management of Economics Study at the University Of Petroleum &
Energy Studies

The completion of this dissertation would not have been possible without the
supervision, guidance and support of several people.

Firstly, I would like to thank the University Of Petroleum & Energy Studies for
giving me the opportunity of writing dissertation and offering various
services such as access to the books of the library.

I want to express my gratitude to my supervisor, DR. ANKUR MITTAL, for her

guidance throughout this work helping me progressing in field work.

I would also like to thank my respondent for their precious time and
participation providing the basis needed for my research and field work.

Finally, I would like to thank my colleagues and friends for supporting and
giving me constructive criticisms on the first draft of my report and those
who have contributed directly or indirectly in the completion of this
dissertation.
 DECLARATION

I hereby certify that the report titled Impact of crude oil price volatility
in Indian Oil and gas industry is my own work and is being submitted in
partial fulfillment for the award of the Bachelors Degree in Business
Administration from the University of Petroleum & Energy studies for the
fulfillment of the requirement of course of Dissertation project. This report
has not been submitted earlier in the University of Petroleum and Energy
Studies or any other organization.

AYUSH SINGHAL

R-170214011

BBA- (Oil and Gas Marketing)

Year: 20l4-20l7

College of Management & Economic Studies, UPES

CERTIFICATE

This is to certify that the Dissertation Report entitled Impact of crude oil
price volatility in Indian Oil and gas industry submitted by
Ayushsinghalto UPES for partial fulfillment of requirements for Bachelors of
Business Administration (Oil and Gas Marketing) is a bona-fide record of the
Dissertation work carried out by him under my supervision and guidance.
The content of the report, in full or parts have not been submitted to any
other Institute or University for the award of any other degree or diploma.

DR. ANKUR MITTAL

College of Management & Economic Studies, UPES

ABSTRACT

India a country diverse in culture and religion, strong in will and manpower, large in size and
opportunities has become a highly wooed automobile market. Despite the impact of the financial
and economic crisis, Indias automobile economy is booming. Due to the unsteady global
situation with respect to the crude oil sector, various sectors of industries were affected.

In this project, I have tried to judge the impact of the rising and fluctuating crude oil prices on
the Indian Automobile sector. On the analyses, it is found that the impact of such a crisis is not as
severe on the Indian economy as it is on the global economy. The automobile sector in India has
shown considerable silence while dealing with increasing fuel prices resulting from highly
unsteady global situation.
 TABLE OF CONTENTS
SR PAGE
TOPICS
NO NO
1 OBJECTIVE OF THE STUDY

2 NATURE& SCOPE OF PROJECT

3 RESEARCH METHODOLOGY

4 INTRODUCTION

5 INDIAN AND GLOBAL OIL SCENARIO

6 IMPORT DEPENDENCE AND ITS IMPACT

7 IMPACT OF HIGHER OIL PRICES ON THE GLOBAL ECONOMY

8 EFFECTS OF RISING FUEL PRICES IN INDIAN CAR INDUSTRY

9 CRUDE OIL DYNAMICS IN INDIA

10 RECOMMENDATIONS

11 CONCLUSION

12 BIBLIOGRAPHY
 Chapter-1

OBJECTIVE OF THE STUDY

The following are the main objectives of my research study :

1) To study and understand how the global international situations are affecting the fuel prices in
India.

2) To study the impact of the higher oil prices on the global economy in brief.

3) To understand the effect of rising fuel prices on the Automobile sector in India.

4) To study the export competitiveness of the Indian automobile industry.

5) To study the impact of global recession on the car industry in India.

 Chapter-2

NATURE& SCOPE OF PROJECT

The project entitled A Study on Impact of Crude Oil Prices Volatility in Indian Oil & Gas
Industries has been done at Dehradun as a completion part of BBA OIL AND GAS program.
The nature of the project is to study of this project is to analyze the impact on the Indian
economy because of unsteady global markets with respect to crude oil sector. This in turn affects
the automobile industry in India. So the research analyses the impact of the effect.
The scope of the project includes research program has been designed

1) To make the person aware of happenings of the real business world.

2) Analysis use to compare the effects of crude oil price on Indian economy.

3) Understand and Study the economic growth of Indian Crude Oil.

4) Analyze the trend in oil price.

5) Understand the relation between the Oil price and Inflation.

In this project, I worked upon the analysis of the effect of rising fuel prices on the automobile
sector with respect to customer attitude, and dealer preference through personal contact,
interview and questionnaire.
 Chapter-3

RESEARCH METHODOLOGY

A Research Methodology defines the purpose of the research, how it proceeds, how to measure
progress and what constitute success with respect to the objectives determined for carrying out
the research study.

The research design is given as below

Exploratory Research: This kind of research has the primary objective of development of
insights into the problem. It studies the main area where the problem lies.

The research methodology for the present study has been adapted to reflect these realties and
helps reach the logical conclusion in an objective and scientific manner.

NATURE OF DATA

1) PRIMARY DATA

Data which is collected through direct interviews and by raising questionnaires in this case to a
few car dealers.

2) SECONDARY DATA

Secondary data that is already available and published. Various internet sites, newspaper,
magazines were searched in order to find information useful for completion of this project.

It can be of internal and external source of data:

1) Internal source

Which originates from the specific field or area where research is carried out?

E.g. publish brochures, official reports etc.

2) External source
This originates outside the field of study like books, periodicals, journals, newspapers and the
Internet.

DATA COLLECTION

1) Primary Data

Questionnaire

A set of questions related to the research topic was formulated. Response for each questions
included in the questionnaire has been collected from the dealers of cars.

2) Secondary Data

Information from various published resources like SIAM papers and other research bodies were
also used to validate the market figures and cross-validate the data.

Sample size

The sample size chosen for the study was 20.

Questionnaire

The questionnaire is formed in such a way that the information required for the study is acquired
from each item i.e. questions. The respondents category range. The questionnaire consists of 10
questions out of which 5 questions were asked to dealers and 4 questions asked to customers.

Sampling design

Selection of study area: Dehradun

Selection of sample size: 20

 Chapter-4

INTRODUCTION

Efficient, reliable and competitively priced energy supplies are prerequisites for accelerating
economic growth. For any developing country, the strategy for energy development is an integral
part of the overall economic strategy.

Efficient use of resources and long-term sustainability remains core objective of economic
planning. Sustainability would take into account not only available natural resources and issues
related to ecological balance but also established delivery mechanisms, the technological
constraints that are prevalent in the system and immediate compulsion to meet the priority needs
of the economy, economic equity and self-reliance. Simultaneous and concurrent action is,
therefore, necessary to ensure that the short-term concerns do not detract the economy away
from the long-term goals.

Realization of high economic growth aspirations by the country in the coming decades, calls for
rapid development of the energy market. The energy resources available indigenously are limited
and may not be sufficient in the long run to sustain the process of economic development
translating into increased energy import dependence. The base of the countrys energy supply
system is tilted towards fossil fuels, which are finite. This has serious long-term implications as
the emerging patterns of energy consumption, which is heavily skewed towards oil and gas,
bring to focus many ecological and environmental issues.
 Chapter-5

Global as well as Indian Scenario

World oil use is expected to grow from about 80 million barrels per day (mbpd) in 2003 to 98
mbpd in 2015 and 118 mbpd in 2030 as per Energy Information Administration (EIA),
International Energy Outlook (IEO) 2006.

To meet the projected increase in world oil demand, total petroleum supply in2030 will need to
be 38 mbpd higher than the 2003 level of 80 mbpd. Of this, China is projected to consume
additional 9.4 mbpd, US 7.5 mbpd and Asia (other than China & India) 6 mbpd. The balance
growth is expected in South America, Africa and Middle East. As per the same report India is
expected to consume additional 2.2 mbpd. OPEC producers are expected to provide 14.6 mbpd
of the increase. Higher oil prices cause a substantial increase in non-OPEC oil production23.7
mbpd, which represents 62 percent of the increasing total world oil supplies over the projection
period. In addition, unconventional resources (including biofuels, coal-to-liquids, and gas-to
liquids) are expected to become more competitive

The Indian economy is set to grow at the fastest rate ever in the coming decades with a major
thrust being to manufacturing and services sector as well as formation of Special Economic
Zones (SEZs). India, traditionally an import dependent country, has set forth a clear agenda for
development of the energy sector in the coming decades with a clear emphasis on stepping up the
steam on domestic production while simultaneously pursuing various import options. The
government policy clearly emphasizes the need for energy security through diversification of
energy resources while integrating with the global trends to emerge as an important player in the
global arena. In view of unfavorable demandsupply balance of hydrocarbons in the country,
acquiring equity in overseas oil and gas assets is one of the important components of enhancing
oil and gas security. The Government is encouraging oil PSUs to aggressively pursue equity oil
and gas opportunities overseas. OVL has made an investment commitment of over US$ 5 billion
and has an oil and gas production of 6.6 MMTOE (Oil and oil equivalent gas) in the year 2005-
06.OVL has a target to produce 20 MMTPA of O+OEG by 2020. OIL, IOC and GAIL are also
engaged in acquiring overseas E&P assets. In addition, private Indian companies like RIL and
Essar are also pursuing E&P opportunities abroad.
India is and shall remain heavily dependent on coal for about half of its primary commercial
energy requirements with the other half being dominated by oil and gas put together. The Indian
hydro carbon industry is currently passing through a challenging phase. Increasing concern for
energy security, increasingly stringent environmental regulations, emergence of natural gas and
soaring crude oil and natural gas prices have thrown up both challenges and opportunities to the
Indian oil and gas industry.

Projected high domestic demand for petroleum products is expected to push investments into the
refining sector. India, with 26 refineries, currently has surplus refining capacity which has placed
India amongst net petroleum product exporter countries. Increasingly stringent fuel
specifications have put pressure on the old and non-compliant refineries to upgrade their refinery
configurations to produce compliant fuels. The Government is seriously considering promoting
India as a competitive refining destination to service export market for petroleum products as
also integrating it with the petrochemical and chemicals businesses to produce and export higher
revenue generating value-added products.

Exceptionally high crude oil prices in the international market and an almost stagnant domestic
crude oil production has caused a drain on countrys foreign exchange reserves. Besides
augmenting domestic reserves, India has successfully ventured overseas to acquire oil and gas
assets and entered into long-term Liquefied Natural Gas (LNG) contracts as measures for
enhancing energy security.

Persistence of high oil prices and dependence on imported oil leaves India with some difficult
choices to make. The choice is between

(a) Passing on the price increase to the consumer

(b) Rationalizing taxes and other levies on petroleum products

(C) Making the National Oil Companies (NOCs) bear the burden.

Although the Government has resorted to a combination of all above three options in the past,
each of these options has its own drawbacks. In the long run, the only viable policy to deal with
high international oil prices is to rationalize the tax burden on oil products over time, remove
anomaly, if any, in the existing pricing mechanism, realize efficiency gains through competition
at the refinery gate and retail prices of petroleum products, and pass on the rest of the
international oil price increase to consumers, while compensating targeted groups below the
poverty line as much as possible.

With the advent of LNG and progressive de-control of gas prices, the natural gas sector in India
has progressed and achieved some degree of maturity. It has managed to receive progressively
growing attention from global companies and has made rapid strides during the last five years.
Current natural gas policy dispensations have created numerous challenges for the gas sector.
Major among them are the demands of competing consumer industries, ensuring competition and
open access in the pipeline transportation and distribution networks, reducing the supply demand
gap that exists today.

Energy is essential for living and vital for development. Affordable energy directly contributes to
reducing poverty, increasing productivity and improving quality of life. Likewise lack of access
to reliable energy is a severe impediment to sustainable social development and economic
growth. For any developing country, the strategy for energy development is an integral part of
the overall economic strategy. Efficient use of resources and long-term sustainability remains
core objective of economic planning. Sustainability would take into account not only available
natural resources and issues related to ecological balance but also established delivery
mechanisms, the technological constraints that are prevalent in the system and immediate
compulsion to meet the priority needs of the economy, economic equity and self-reliance.
Simultaneous and concurrent action is, therefore, necessary to ensure that the short-term
concerns do not detract the economy away from the long-term goals.
 Chapter-6

IMPORT DEPENDENCE AND ITS IMPACT

Presently, about 45 per cent of primary commercial energy needs are met from oil and gas. Of
this, over 70 per cent of domestic oil consumption is imported mainly from Middle East. Gas
imports started in 2004-05 and in 2005-06 about 19 per cent of the gas consumption was met
from imports. Import dependence is likely to increase considering low accretion to domestic oil
and gas reserves. In fact, the case of India is not typical and several oil consuming countries face
similar situation. It is expected that global oil dependence on OPEC will continue to rise with
countries competing for scarce resources.

The country has spent foreign exchange to the tune of about $ 39 billion in 2005-06 towards the
import of crude oil. The projected out go of foreign exchange on account of import bill of Crude
Oil in 2006-07 will remain high. The crude oil payments are in fact more than double for every
barrel of crude in2005-06 over 2002-03. This is a high price to pay for our dependence.
Unfortunately, even in the future this position does not appear to improve. Given our track record
in domestic E&P, our situation is likely to deteriorate.

Oil price vulnerability may affect GDP growth and has the potential to disrupt future
development. Obviously India needs to shift focus from short-term management of energy
requirements and pricing to long-term energy policy in light of core objectives indicated above
and particularly in light of recent price spikes in the international oil markets. The challenge then
is to ensure supply of energy at affordable price within available resources. Policy direction and
intervention need to reorient the approach to match circumstances.

Economic theory suggests that larger the number of companies operating in a sector, the more
competitive it is and greater the productivity gains. Though at the same time economists have
difficulty in finding perfectly competitive markets and particularly so in oil and gas. This is so
because oil is intertwined with national interests and energy is recognized as fundamental for
economies to function. In fact it is easier to find regulation and control in oil sector more so in
the developing countries.
Marketing and Distribution of Petroleum Products

The landscape of countrys POL distribution has undergone a change with surplus availability
situation in most of the products. Imports/exports of products are taking place on need/economic
considerations. Based on supply demand balances, companies are entering into bilateral
agreements for product exchanges and sharing infrastructure on commercial considerations. New
infrastructure is being created to fulfill the demand-supply gap based on rationalization and with
a holistic view. Since logistic costs play a significant role in commercial consideration, with
growing competition, each company is trying to reduce costs of production, transportation,
overheads, etc. Expansion of pipeline network is taking place for reducing transportation costs
and product losses. Technological intervention by industry to ensure product quality and quantity
across supply chain has been initiated. Automation is being carried out at retail outlets and
terminals/depots. Further, tracking the movement of tank trucks through Global Positioning
System (GPS) is also being implemented. This ensures smooth operations, which get tracked for
any scrutiny and minimize human intervention in the processes.

Marketing of Petrol/Diesel, Kerosene and LPG

A) Petrol/Diesel

The oil sector has been deregulated since April 2002, with the dismantling of APM, and currently
there are many players including private oil companies in the marketing of petrol/diesel. The
major existing policy is with respect to grant of marketing rights for transportation fuels. As per
the existing policy any new player willing to market transportation fuels in India is required to
invest or express intention to invest a minimum of Rs.2,000 crore in the hydrocarbon sector, i.e.,
E&P, pipelines, terminals, etc. or the new player may produce 3

MMT of crude to market the fuel . This policy is an essential requirement to prevent fly-by-
night operator entering the market, and may therefore be continued. Adulteration is a menace,
which needs to be tackled by all concerned through technological and other interventions.
Various steps to curb adulteration have been initiated. These include introduction of tamper-proof
locks, use of GPS in tank-trucks, introduction of marker system for adulterants like kerosene,
retail automation, third party certification, etc. In order to check the en-route malpractices, all the
company owned/dealer owned/contractor tank trucks would be covered under monitoring of
movement through GPS by March 2007.

With competition having set in, there is a lot of focus on the customer needs. Companies have
started offering better forecourt services, non-fuel products atROs, usage of credit/debit/fleet
cards with attractive loyalty programs to attract and retain customers and volumes. Innovative
methods to improve customer relationship are being introduced. With more and more ROs being
commissioned and with lowering of per pump throughput, companies May scout for
opportunities in non-fuel retailing to enhance dealers and company income levels.

B) LPG

Domestic LPG, like kerosene, is subsidized by the Government. The subsidy is available to all
users of the domestic LPG, irrespective of their economic status. Domestic LPG carries non-
merit subsidy as it is not perceived as a fuel for the poor. There is a case for gradually increasing
the prices of domestic LPG to reflect the market prices. The price difference between the
domestic LPG and non-domestic LPG (Bulker packed) is a cause of diversion of domestic LPG
to non-domestic use, like hotels, restaurants, and automotive sector. In order to eliminate/reduce
diversion of domestic LPG to automotive sector and other commercial usage, oil industry has
initiated measures like refill audit to control the diversion.

Auto LPG dispensing facilities have been set up in select areas to control pollution and to
reduce/eliminate diversion of domestic LPG to automotive sector. This measure has yielded
results and Auto LPG sales have gone up substantially in the last two years. In order to further
encourage use of auto LPG, Auto LPG Dispensing Stations (ALDS) may be set up on priority in
big towns which are not likely to receive CNG in the short to medium term. Such investments, of
course, would be driven by commercial considerations.

Use of CNG

Use of CNG as an automotive fuel is being encouraged and propagated due to environmental
considerations in the cities, where gas is available. After careful consideration of the
international practices and the experience of the industry, national safety standard has been
adopted for CNG installation by the statutory bodies. Further, implementation of OISD
recommended practices need to be considered and overseen in view of the extensive use/storage
of CNG in pressurized containers in automobiles.

The OISD standard on safety requirements for compression, storage, handling and refueling of
natural gas for use in automotive sector, needs to be followed by the CNG sector. The standard
lays down the minimum safety requirements at installations handling natural gas for dispensing
into vehicles and minimum checks required in the vehicles by re fuelling stations. Natural gas is
produced both worldwide and domestically at relatively low cost and is cleaner burning than
gasoline or diesel fuel. CNG vehicles have been introduced in a wide variety of commercial
applications, from light-duty trucks and sedans - like taxi cabs, to medium-duty trucks - like UPS
delivery vans and postal vehicles, to heavy-duty vehicles like transit buses, street sweepers
(pictured right) and school buses. In California, transit agency buses are some of the most visible
CNG vehicles.

Reasons for switching over to this alternate fuel are mainly:

1). Economic benefit: The cost of CNG is almost a third of the cost of Petrol in terms of
calorific value resulting in substantial saving in fuel cost, and investment on the CNG kit is paid
back in a short period

2). Environment friendly: The use of CNG as a fuel reduces vehicular exhaust emissions
significantly. Carbon Monoxide emissions are reduced by 70 to 90%and Hydrocarbon emissions
by 40 to 60% as compared to vehicles that use the conventional fuel - Petrol. Carbon Dioxide
emissions, a cause for global warming, are also reduced significantly by 10%.

3). 100% Income Tax Depreciation: Corporate Organizations, firms, etc. can claim 100%
depreciation on a CNG Conversion Kit as this is a pollution controlling equipment.
Organizations that buy CNG Conversion Kits should consult their Income Tax Consultants and
avail of the depreciation benefits

4). Flexibility and ease of use: The basic engine characteristics of a vehicle are retained while
converting it to run on CNG. The vehicle therefore is capable of running either on Petrol or CNG
at the flick of a switch on its dashboard.
Import/Export of Petroleum Products

The Minister of State (I/C) for Petroleum & Natural Gas

ShriDharmendraPradhan informed the LokSabha in a written reply today that
the details of domestic production and consumption of petroleum products,
crude oil production and refining capacity of public and private sector
companies during the last three years (2012-13 to 2014-15) and the current
year i.e. 2015-16 (April-June).
The demand and supply of crude oil/petroleum products in the country for
consumption of petro-products and fulfilling the needs of oil refineries is an
inter-play of several factors like success in new production of crude oil,
successful acquisition of assets or equity oil abroad, success in conservation
efforts, etc. On an overall basis petroleum products availability from
refineries and fractionators exceeds domestic consumption of the country.
The refining capacity available in the country is 215.07 MMTPA as on
01.04.2015 which far exceeds petroleum product requirement for domestic
consumption. However, there were still imports of some petroleum products
like Naphtha, Fuel oil etc. to meet specific requirements of the user-
industries. Also, imports were resorted to, to meet domestic consumption
and requirement of certain products like LPG, lubes, etc.

In order to reduce import dependency on crude oil, Government has

taken/is taking a number of initiatives to increase domestic production of
crude oil and to promote conservation of petroleum products.

To accelerate the pace of exploration and production of oil and gas in

the country, various steps have been/are being taken by the Government as
under:-
i. Enhance production from the existing field by adopting Improved Oil
Recovery (IOR)/Enhanced Oil Recovery (EOR) measures using latest
technology.

ii. Bring into production new discoveries at the earliest. For this a policy
framework for early monetization of hydrocarbon discoveries under PSC
regime has been approved by the Government. This policy has addressed
rigidities in the timelines of the PSC and has allowed the contractors to start
production at the earliest.
iii. Facilitate enhanced exploration activities through following measures:
Appraisal of about 1.5 million sq km un-appraised area of the Indian
Sedimentary Basins and acquisition of geo-scientific data under Multi
client and non-exclusive policy.
Re-assessment of Hydrocarbon Resources.
Setting up of National Data Repository. Policy approved for exploration and
exploitation of Shale Gas/Shale Oil resources by National oil Companies
under the nomination regime.
Besides, Petroleum Conservation Research Association (PCRA), under the
Ministry of Petroleum & Natural Gas, has been given the mandate to promote
conservation of petroleum products in the major sectors of economy like
transport, industry, households and agriculture through direct technical
assistance, R&D educational and training programmes and mass awareness
campaigns. PCRAs activities cover conservation of all energy sources,
development, evaluation and commercialization of efficient equipment and
additives, popularizing production of bio-fuels, environment protection etc.

The quantum of petroleum products exported to various countries by

public/private sector companies in the country
The quantum of petroleum products including crude oil imported in the
country along with amount paid by the oil companies during 2012-13 to
2014-15 (P) country wise including Iran, Iraq and other Middle East countries.

During the UrjaSangam held on 27.03.2015 at New Delhi, honourable Prime

Minister has assigned the target for reduction of import dependency in
energy by 10% from current level of about 77% by 2021-22. A Committee
has been constituted under the Chairmanship of Additional Secretary,
Ministry of Petroleum and Natural Gas to prepare a roadmap in order to
achieve the aforesaid target assigned by Honourable Prime Minister.

Fractional distillation of crude oil in an oil refinery andthe uses of fractions

(related to their molecular properties)

This page describes the separation of useful products from crude oil by the
process of fractional distillation, part of the oil refining process in the
petrochemical industry. Crude oil provides the starting raw material for
making lots of different chemicals for a variety of uses. The uses of the
fractions from fractional distillation fuel gas, LPG, refinery gas, gasoline,
petrol, naphtha, paraffin, kerosene, diesel oil, gas oil, fuel oil, lubricating oils,
wax and bitumen fractions are tabulated and many are nonrenewable fuels.
The uses of a fraction are related to its physical properties e.g. ease of
vaporization& boiling point or its viscosity ('stickiness') and the dangers of
flammability are pointed out too. There is also a discussion on what makes a
good fuel and reference to alternative fuels. These notes on fractional
distillation of oil and the uses of oil fractions are designed to meet the
highest standards of knowledge and understanding required for
students/pupils doing GCSE chemistry, IGCSE chemistry, O Level chemistry
and KS4 science courses.

Crude oil is a finite resource found in rocks. Crude oil is the remains of an
ancient biomass consisting mainly of plankton that was buried in mud and
subjected to heat and pressure that slowly end up as a yellow to brown liquid
which may form pools or be absorbed into porous rocks like shale.

Crude oil is an important raw material, and the source of many useful
substances such as fuels and a chemical feedstock for the petrochemical
industry, from which endless products, including plastics and drugs, are
eventually manufactured, BUT, it is a finite resource, and won't last forever.

Many useful materials on which modern life depends are produced by the
petrochemical

Industry, such as fuels, solvents, lubricants, polymers, detergents and host of

other specialized chemicals - even drugs for medicinal formulations.

When initially pumped out of the ground crude oil is a complex mixture of a
very large number of compounds most of which are hydrocarbons, molecules
composed of hydrogen and carbon atoms only and many of them are
hydrocarbons called alkanes (a particular series of organic compounds, that
compounds based on carbon - details in other sections).

The hydrocarbons may consist of molecules based on chains of carbon atoms

(mostly 1 to 40), sometimes linear ('straight') and sometimes branched (a
side-chain of C atoms) and others are based on rings of carbon atoms.

Examples.
Straight chain or linear alkane hydrocarbons:

Branched alkane hydrocarbons:

Hydrocarbon ring compounds , , ,

About the ring compounds.

The complex mixture of hydrocarbons in crude oil can be separated

into fractions by the technique of fractional distillation.
Crude oil cannot be used directly but must be refined before commercially
useful products are produced by the petrochemical industry (collectively
called petrochemicals).

The oil refining process principally involves fractional distillation into

useful fractions i.e. products with specific uses, but further processing may
needed to diversify both the quantity and nature of particular oil based
products.

A fraction is a mixture of liquids (in this case hydrocarbons) with a relatively

narrow (restricted) boiling point range of molecules, i.e. those with a similar
number of carbon atoms in the chain.

Within each fraction obtained from crude oil the hydrocarbon molecules have
a similar number of carbon atoms and similar physical properties.

The uses of the fractions very much depend on their physical properties,
which in turn are dependent on the length of the molecule i.e. the carbon
atom chain in a hydrocarbon molecule.

What goes on in an oil refinery?

Crude oil is a complex mixture of many compounds, but mainly

hydrocarbon compound molecules.

o A mixture consists of two or more elements or compounds which

are NOT chemically combined.

o The chemical properties of each substance in the mixture is

unchanged as the there are no chemical bonds between the
hydrocarbon molecules.
 o Therefore a mixture can be separated quite easily by physical
means egfractional distillation.

This means crude oil can be separated by physical methods, in this

case by fractional distillation, because they have different boiling and
condensation points.

The liquids must also be completely soluble in each other, that is they
must all be miscible liquids.

o When the temperature is high enough, the kinetic energy of a

particular hydrocarbon molecule will be sufficient for it to escape
the intermolecular forces in the liquid and become a gas.

o The intermolecular forces are much weaker than the strong

carbon - carbon bonds in the hydrocarbon molecule, so it
vaporizes without decompose.

At the bottom of the fractionating column the crude oil is heated to

vaporize it (evaporated or boiled) and the vapor passed into
the fractionating column a large construction of many levels and
pipes see the 'simple' diagram below!

o A fractionating column acts in the same way as a fractional

distillation apparatus in the school/college laboratory but on an
industrial scale!

o In an oil refinery the fractionating columns are very tall with huge
surface area to give the best chance of separating the dozens of
hydrocarbons in the crude oil (see diagram on the left.

This is a continuous process (not a batch process). The fractionating

column works continuously with heatedvaporized crude oil piped in at
 the bottom and the various fractions condensed and constantly tapped
off from various levels, each with a different condensation temperature
range.

Up the fractioning column the temperature gradually decreases

(temperature gradient), so the highest boiling (least volatile) molecules
tend to be at the bottom and the lowest boiling (most volatile)
hydrocarbons go to the top. The rest of the hydrocarbon molecules
then condense out in narrow temperature range i.e. the different
fractions condense out in a gradual way from top to bottom depending
on their boiling point.

In other words the most volatile fraction, i.e. the molecules with
the lowest boiling points (shortest hydrocarbon molecules), boil or
evaporate off first and go higher up the column and condense out at
the higher levels in the fractionating column at the lowest
temperature.

The higher the boiling point (the higher the condensation point) the
lower down the column the hydrocarbon condenses.

So all of the hydrocarbon molecules separate out according to their

boiling/condensation point so that the highest boiling fraction, i.e.
the less volatile molecules with higher boiling points (longest
hydrocarbon molecules),tend to condense more easily lower down the
column, albeit at the higher temperatures.

The process is perhaps more correctly called fractional

condensation but it is still referred to as fractional distillation.

The bigger the molecule, the greater the intermolecular attractive

forces between the molecules, so the higher the boiling point or
 condensation point This is an important rule to know since the
intermolecular forces (intermolecular bonding) affect the physical
properties including melting point and viscosity too, and this has a
bearing on how each fraction is used, see below.

Note: Covalent chemical bonds like CC or CH are not broken in the

process; only the intermolecular force of attraction is weakened to
allow the initial evaporation or boiling and this.

The fractions are then further processed to produce fuels and chemical
feedstock for the petrochemical industry.

These include fuels such as liquefied petroleum gas, petrol, diesel oil,
kerosene, heavy fuel oil which are all non-renewable fossil fuels, as is
methane from natural gas.

From the chemical feedstock and petrochemical industry we produce

many useful materials on which our modern life depends e.g. solvents,
lubricants, medicines, polymers, detergents etc.

The fractions are listed below with the approximate boiling point
ranges and approximate number of carbon atoms in the molecule.
 Figure-2 Fractional Distillation Process

Chapter-7
 IMPACT OF HIGHER OIL PRICES ON THE GLOBAL ECONOMY

Oil prices remain an important determinant of global economic performance. Overall, an oil-
price increase leads to a transfer of income from importing to exporting countries through a shift
in the terms of trade. The magnitude of the direct effect of a given price increase depends on the
share of the cost of oil in national income, the degree of dependence on imported oil and the
ability of end-users to reduce their consumption and switch away from oil. It also depends on the
extent to which gas prices rise in response to an oil-price increase, the gas-intensity of the
economy and the impact of higher prices on other forms of energy that compete with or, in the
case of electricity, are generated from oil and gas. Naturally, the bigger the oil-price increase and
the longer higher prices are sustained, the bigger the macro economic impact. For net oil-
exporting countries, a price increase directly increases real national income through higher
export earnings, though part of this gain would be later offset by losses from lower demand for
exports generally due to the economic recession suffered by trading partners.

Adjustment effects, which result from real wage, price and structural rigidities in the economy,
add to the direct income effect. Higher oil prices lead to inflation increased input costs, reduced
non-oil demand and lower investment in net oil importing countries. Tax revenues fall and the
budget deficit increases, due to rigidities in government expenditure, which drives interest rates
up. Because of resistance to real declines in wages, an oil price increase typically leads to
upward pressure on nominal wage levels. Wage pressures together with reduced demand tend to
lead to higher unemployment, at least in the short term. These effects are greater the more
sudden and the more pronounced the price increase and are magnified by the impact of higher
prices on consumer and business confidence. An oil-price increase also changes the balance of
trade between countries and exchange rates. Net oil-importing countries normally experience
deterioration in their balance of payments, putting downward pressure on exchange rates. As a
result, imports become more expensive and exports less valuable, leading to a drop in real
national income. Without a change in central bank and government monetary policies, the dollar
may tend to rise as oil-producing countries demand for dollar-denominated international reserve
assets grow. The economic and energy-policy response to a combination of higher inflation,
higher unemployment, lower exchange rates and lower real output also affects the overall impact
on the economy over the longer term. Government policy cannot eliminate the adverse impacts
described above but it can minimize them. Similarly, inappropriate policies can worsen them.
Overly contractionary monetary and fiscal policies to contain inflationary pressures could
exacerbate the recessionary income and unemployment effects. On the other hand, expansionary
monetary and fiscal policies may simply delay the fall in real income necessitated by the increase
in oil prices, stoke up inflationary pressures and worsen the impact of higher prices in the long
run.

While the general mechanism by which oil prices affect economic performance is generally well
understood, the precise dynamics and magnitude of these effects especially the adjustments to
the shift in the terms of trade are uncertain. Quantitative estimates of the overall
macroeconomic damage caused by past oil price shocks and the gains from the 1986 price
collapse to the economies of oil importing countries vary substantially. This is partly due to
differences in the models used to examine the issue. Nonetheless, the effects were certainly
significant: economic growth fell sharply in most oil-importing countries in the two years
following the price hikes of 1973/1974 and 1979/1980. Indeed, most of the major economic
downturns in the United States, Europe and the Pacific since the 1970s have been preceded by
sudden increases in the price of crude oil, although other factors were more important in some
cases.

Similarly, the boost to economic growth in oil-exporting countries provided by higher oil prices
in the past has always been less than the loss of economic growth in importing countries, such
that the net effect has always been negative.

Higher oil prices, by affecting economic activity, corporate earnings and inflation, would also
have major implications for financial markets notably equity values, exchange rates and
government financing even, as assumed here, if there are no changes in monetary policies:
International capital market valuations of equity and debt in oil-importing countries would be
revised downwards and those in oil-exporting countries upwards. To the extent that the
creditworthiness of some importing countries that are already running large current account
deficits is called into question, there would be upward pressure on interest rates. Tighter
monetary policies to contain inflation would add to this pressure.
Currencies would adjust to changes in trade balances. Higher oil prices would lead to a rise in the
value of the US dollar, to the extent that oil exporters invest part of their windfall earnings in US
dollar dominated assets and that transactions demand for dollars, in which oil is priced,
increases. A stronger dollar would raise the cost of servicing the external debt of oil-importing
developing countries, as that debt is usually denominated in dollars, exacerbating the economic
damage caused by higher oil prices. It would also amplify the impact of higher oil prices in
pushing up the oil-import bill at least in the short-term, given the relatively low price-elasticity of
oil demand. Past oil shocks provoked debt-management crisis in many developing countries.

Fiscal imbalances in oil-importing countries caused by lower income would be exacerbated in

those developing countries, like India and Indonesia that continue to provide direct subsidies on
oil products to protect poor households and domestic industry. The burden of subsidies tends to
grow as international prices rise, adding to the pressure on government budgets and increasing
political and social tensions.
 Chapter-8

EFFECTS OF RISING FUEL PRICES

Rising fuel prices is continuously affecting the lifestyles as well as influencing the car buying
decision of Indians. Consumers are continuously restricting themselves from buying new cars
and even from going for a long drive. No one ever thought that the rise in fuel price will be so
devastating. India raised its petrol and diesel prices by almost 10% in June. June 21, 2008 sees
the highest inflation in oil prices since May 6, 1995. The inflation in May 1995 was 11.5% and
June 21, 2008 witnessed 11.63%.

Immediate Effect of Rising Fuel Prices

The inflation has risen so sharply that no one had time to think over any issues and be planned.
There were some immediate effects that no one was able to overcome. Some of them are as
follows:

Poor section of the society is unable to buy daily food intake because food products
zoomed about 0.9%.
Some people even reduced the intake of costly healthcare products because the prices
climbed to about 0.6%.
Industrial applications were reduced because the costs of alloys and metals increased by
0.8%.
Car sales gone down to about 8%.
Market shares also went down with the shaking economy.

Chapter-9
CRUDE OIL DYNAMICS IN INDIA

Three fourth of Indias energy need is met through fossil fuel. According to International Energy
Agency, coal/peat accounts for 40 per cent of domestic energy consumption. Crude oil and
natural gas account for 24 per cent and 6 per cent respectively. Crude oil import to meet domestic
need is mounting by the year. Experts believe that imports are expected to rise to 90 per cent of
demand by 2013. At present almost 80 per cent of crude oil demand is met through imports. Oil
import bill stood at 159.259 MMT in 2009-10, further rising to 163.594 in 2010-11. Indias oil
import bill accounts for almost one third of the total imports. Almost 70 per cent of Indias total
crude oil imports are from Middle East and North Africa (MENA) region showing the countrys
high reliance on the region for its crude oil needs.

Imports of crude oil and petroleum products:

Imports of Crude Average Crude oil %

Year Oil (MMT) % Growth Prices (US$/bbl.) Growth
2003-04 90.434 - 27.98 -
2004-05 95.861 6 39.21 40.14
2005-06 99.409 3.7 55.72 42.11
2006-07 111.502 12.16 62.46 12.1
2007-08 121.672 9.12 79.25 26.88
2008-09 132.775 9.13 83.57 5.45
2009-10 159.259 19.95 69.76 -15.77
2010-11 163.594 2.72 85.09 21.97

Despite efforts to liberalize the oil sector, state owned firms continue to dominate both upstream
and downstream sectors. India has fifth largest refinery capacity in the world. Under the 11th
Five Year Plan, the government aims to promote India as a refinery destination by improving the
competitiveness of the industry.

The Indian Basket of crude oil comprises Oman and Dubai for sour grades and Brent for sweet
grade in an approximate 60-40 ratio. The global prices have direct bearing on the price of Indian
crude oil and any rise in crude oil prices adds to the inflationary pressures. Fuel inflation is on a
rise with brief decline in 2008 when the global prices had plummeted. Inflation in crude oil
contributes to 14.2 per cent of the headline inflation. However, the complete rise in global prices
is not passed on to the Indian consumers. The government compensates the state losses. At the
same time, taxes are levied on oil at various levels. Petrol/gasoline prices were de-regulated in
June 2010 in response to burgeoning budget deficit. Price of diesel, kerosene and LPG are still
controlled by the government. In the Budget 2011, the Central government had announced a fuel
subsidy bill of US$5.2 billion for this fiscal, based on the assumption that oil prices will remain
below subsidy bill is likely to be inflated by US$100 per barrel. However, the oil subsidy bill is
likely to be inflated by US$6.8 billion in the wake of sustained high prices. Consequently experts
believe that the government may not be able to achieve the fiscal deficit target of 4.6 per cent
given the upside risk to oil subsidy amongst other factors.

Rise in crude oil prices also slows down the economy. A study by Morgan Stanley suggests that
crude oil price at US$85 can shave off 0.9 per cent from gross domestic product and at US$100
the drop can be as high as 1.3 per cent. The per capita consumption of oil is a fifth of the global
average leaving a lot of potential for increase. Despite low per capita consumption, the domestic
demand outstrips the supply such that reliance on import is paramount.

The Government has also intensified efforts towards promoting alternative sources of energy.
The nuclear energy production capacity is being aggressively developed after the government
bagged on international civil nuclear co-operation deal. Additionally government is building
strategic petroleum reserves to provide buffer in the time of short supply. The facilities are being
built in Vishakhapatnam, Mangalore and Padur with a total capacity of 36.6 million barrels (5
million metric tons). Underground civil works for Visakhapatnam and Mangalore project are
under progress. According to the U.S. Energy Information Administration, the consumption of
crude oil in India is expected to rise by 1.8 per cent annually between 2007 and 2035 driven by
the transportation sector in the reference case scenario. Consumption is expected to rise to 3.2
mbpd in 2015 to 3.9 mbpd in 2025 and 4.7 mbpd in 2035 far exceeding the domestic production.
The consumption is expected to grow at almost double the rate of growth in production.
Production Outlook for India (million Metric tons)

Crude Oil
Production Natural Gas Production
Year (MMT) % Growth (BCM) % Growth
2003-04 33.373 - 31.962 -
2004-05 33.981 1.82 31.763 -0.62
2005-06 32.19 -5.27 32.202 1.38
2006-07 33.988 5.59 31.747 -1.41
2007-08 34.118 0.38 32.417 2.11
2008-09 33.508 -1.79 32.845 1.32
2009-10 33.691 0.55 47.496 44.6
2010-11 37.712 11.94 52.222 9.95

Impact of Crude oil prices on the Indian economy

India is the 7th largest country with the land mass of 3.29 million sq.k.m and second largest in
population of over one billion. It accounts for 16 per cent of the world population. The country
has to produce about one trillion worth of GDP to fulfill the needs of its huge population. In
order to produce this one trillion dollar worth of output, India needs 2.5 million of oil per day
which is 6.5 per cent of total world demand for oil. The share of commercial energy consumption
in total energy consumption has increased from 29 per cent in 1953-54 to 68.2 per cent in 2001-
02. These ever exert demand profound influence on the growth and inflation levels in India.
International oil price assumed to affect the domestic prices. However in Indias case the sharp
increase in international oil prices has not been fully transmitted in to the domestic prices. The
administrative price mechanism had shielded the country from the impact of oil shocks.

Indias crude oil import bill may cross USD100 billion if the global price stays firm at USD 100-
USD 120 a barrel. If that happens, it will upset the delicate fiscal balance, expand deficit,
increase the subsidy bill that continues to bloat year after year and fuel inflationary expectations.
Rising crude oil prices will impact inflation whether the government absorbs the burden or
passes it to the consumer by increasing prices of petroleum products. If the government acts as a
buffer, the oil subsidy bill will rise and affect fiscal deficit. This will indirectly fan inflation.
India's oil import bill in the first 11 months of 2010-11 was USD 85 billion. For the whole year,
it is reported to have reached USD 90 billion. India, which imports nearly 80 per cent of its crude
oil requirement, spent USD 79.55 billion in 2009-10. Rising crude price will lead higher inflation
and higher inflation attracts monetary tightening. Monetary tightening would lead to a squeeze
on aggregate demand, impacting economic growth. This is a major import item and is highly
price inelastic as a result of which it has a strong impact on the economy.

Soaring crude oil prices has impacted the Indian economy to a great extent. India's April-June
growth domestic product (GDP) grew at 7.7% on-year, while the country's fiscal second quarter
(July-September) GDP grew at 6.9% on-year. The Government had lowered the country's gross
domestic product (GDP) growth forecast to 7.25%-7.75% for the year 2011-12 from the original
projection of 9%. The economic situation of emerging economies has remained grim with prices
of crude oil remaining high at or above $105 per barrel for most part of the year.

The price of the Indian basket of crude oil rose from an average of $69.8 per barrel in 2009-10 to
$85.1 per barrel in 2010-11 and further to $118.5 per barrel in April 2011, before declining to
$110.6 per barrel in May 2011 on expectations of weaker global growth. It has also been
identified that a few other key factors, including inflated import bills and highly volatile
commodity pricing in food, fuel and non-ferrous metals, which have affected the Indian
economy.

Oil price shock

The Indian economy imports about 70% of its oil requirements from international markets. This
makes the economy vulnerable to any increases in oil prices in the international markets.
However, the oil prices do not affect the economy homogenously. The services sector is far less
dependent on oil than the industrial sector. In fact, as most of the growth in the economy is
coming from the services sector, the economy and its performance is becoming less vulnerable to
oil price fluctuations. Another reason for the oil-price shocks not being fully effective in India is
the governments administered pricing policies of oil that diffused the hikes by raising subsidy
etc. The obvious shock periods are 1973 to 1974 and 1980, the two shocks that sent the world
into a recession. However, 1990 (the first Iraq war) and the period around 1999 also show
significant oil price hikes.

CALCULATIONS OF OIL PRICES IN INDIA

The above mentioned highlights have greatly influenced the total cost price of oil in the country.
All the factors like import tax, excise duty and other taxes levied by the government affects the
total cost price. Here there is an explanation of how fuel price is calculated and how taxes
influence the cost price. If the cost price of petrol per liter is Rs 72.50, following is the break up
for the same:

Basic Price: Rs. 33.35

Excise duty: Rs. 16.55

Education Tax: Rs. 0.48

Dealer commission: Rs. 1.50

VAT: Rs. 6.5

Crude Oil Custom duty: Rs. 2.1

Petrol Custom: Rs 3.54

Transportation Charge: Rs. 8.48

Total price: Rs 72.50

Consumers Perception

High inflation has brought down the car market forcing the car manufacturers to come up with
exciting offers to lure customers. But the offers didnt turn out to be successful because
consumers had their own perspectives.

92% of the prospective buyers have a belief that the fuel price will go down in another
three to four months and they wish to wait for their next purchase.
66% have switched over to public transport and quit driving.
87% consumers are in hunt for a fuel efficient car.
38% of the consumers are trading or selling their cars in return of something with better
fuel efficiency.
20% of the prospective buyers are happy driving their two-wheelers.

Petro-Products Consumption in India

The list below is the total Petro-Products consumed in barrels per day in India. There may be
some discrepancy between the oil produced or imported and Petro-Products consumed. This is
mainly because of the omission of stock changes.

Petro-Products Production in India

The list below is the total Petro-Products consumed in MMT in India.

Consumption of Petro-Products
Year (MMT) % Growth
2003-04 107.751 -
2004-05 111.634 3.6
2005-06 113.213 1.41
2006-07 120.749 6.66
2007-08 128.946 6.79
2008-09 133.599 3.61
2009-10 137.808 3.15
2010-11 141.786 2.88

Some Miscellaneous effects of rising fuel prices

Apart from having a devastating effect on the Indian car industry, rising fuel prices have also
wound down the booming airline industry and affected the electric power plants of the country.
The Indian airline industry was flying high but the sudden hike in fuel prices brought down the
faith of other major players in the same field including Air India, Jet Airways, Kingfisher and
SpiceJet. Indian power system also faces a great threat by the rising oil prices. The major Indian
cities like Mumbai and Bangalore are facing frequent load shedding due to oil shortage. People
residing in these cities are facing this problem of unscheduled long hours of power cut daily. In
short, high oil prices have become a pain at the pumps, in the houses and even in the industries,
dictating a heavy loss to the Indian economy.

When the price of crude oil rises globally, it has a big impact on India, and in particular its
automobile industry. India is the fourth biggest user of crude oil in the world, importing three-
quarters of it, at a huge cost. Between January and October, 2010 India spent $82.1 billion on
crude oil imports. So when the price rises, there is an instant effect on Indias economy.
A rise in price is transferred to the automobile industries in one of two ways. Either the price of
petrol increases or the government absorbs the price rise, leading to more subsidies to fuel
companies being paid, resulting in a greater fiscal deficit. In turn this indirectly generates a rise
in inflation, and restriction of growth. The Reserve Bank of India commented on the crude oil
price rise, blaming it, along with worldwide uncertainty and slow economic recovery, for
hampering growth in India. Growth for the fiscal year 2011 is only pegged at % by the bank,
down from 8.6% the previous fiscal year.

The other impact is more instantly tangible; the rise in petrol prices. The gas prices rose by 9%, a
record rise, and the eighth time since the governments economic reforms which deregulated
gasoline in June 2010. Increased petrol prices see motorists switch to different forms of
transport, from cars to public transport or bicycles, which impacts upon automobile sales. If the
cost of running a car becomes too high, people are happy to change the way they move about
their cities.

Even if the public do not abandon car ownership, perhaps because of fears concerning the
reliability of public transport, people are tempted to change to vehicles which run more
efficiently. This particularly affects automobile companies who create larger and more powerful
vehicles. As mentioned before, India imports the majority of its crude oil. Iran is the second
biggest exporter of crude oil to India, and their imported produce is valued at $12 billion.
However, the United States has claimed the European Iranian Trade Bank, which handles the
transactions, is responsible for financing an Iranian nuclear weapons programme. As such, the
United States does not want India to continue pursuing trade with the bank. So India needed to
find a different way to pay Iran, or find an alternative solution, to avoid suffering a crude oil
shortage and further raised prices.

FACTORS THAT INFLUENCE RISE OF PRICES OF PETROL-

Petrol prices in India are fluctuating very frequently in recent past because of many factors as
mentioned below:

Cost of crude oil:

Increase in crude oil prices in the international market is one important factor responsible for
increase in petrol prices in Indian domestic market. Increases international demands, low
production rate and any political disturbances in crude oil producing countries of the world
influence seriously prices of fuels like petrol.

Increased demand:

Strong economic growth of India and other developing countries in Asia have increased huge
demand of petrol and other related essential fuels resulted price hike in petrol in India.

Mismatch of supply and demand:

Indian oil companies face problem to meet demands of petrol with shortage of production and
supply from oil refineries due to high input cost in crude oil price.

Tax burden:

Prices of petrol and other petroleum products vary according to local government policies in
imposing taxes on fuels. Whenever government of India increases tax on fuels the oil companies
in India have no other alternative to increase the petrol price to recover losses and maintaining
marginal profits in oil business in India.

Petrol prices keep rising and falling throughout the year. These fluctuations are due to many
reasons. The single most important long term reason is the variations in the price of crude oil.
The variations in prices of crude oil directly affect the petrol prices. The main reason for the
variations in crude oil prices may be:

Strong global requirement-:

1. Limited production capacity.

2. Political issues in oil producing countries.

Further the various short term reasons are-:

 1. Increasing taxation.
2. Government Regulations.

Increase in Demand.

The sharp increase in the petrol price has created an alarming situation for the Automobile
Industry. It is witnessing a massive decline in the sale of petrol vehicles. The increasing prices of
petrol has not only adversely touched the life of the common man, but has created a disturbing
situation for the automobile industry itself. The continuous hike in the petrol prices has cast a
shadow on the development of the Automobile industry in India.

This acceleration in the petrol price has put a lot of strain on the demand of automobile cars and
has affected the general growth of the industry. This is the time when the Indian automotive
market is evolving as one of the upcoming consumer market in the world. The top most
automobile manufacturers around the world are keenly exploring the Indian market. The steep
hike in petrol prices has dampened their spirit.

The soaring fuel prices have affected the sales of the automobile cars negatively. The demand for
the luxury cars has receded. This frontal attack on the petrol prices has disappointed the
enthusiastic consumers quest for buying shining new cars. There is a lesser flow of new
consumers in the market. People, in general are hesitating to buy a new car due to the increased
expenditure being incurred on petrol. The consumer is left with fewer options and ultimately will
have to settle for a smaller car. The hike in petrol prices has greatly reduced the foot traffic in
The Automobile showrooms.

The rate hike has a detrimental effect on the consumers who at times have to avail car loans to
invest in a new car. High interest rates and hike in petrol prices are leading to major decline in
the sale sector of the automobile industry. The domestic petrol car sales are considerably going
down. The automobile manufacturers have to diversify now and completely focus on
manufacturing diesel vehicles. As a result, lot of extra expenditure has to be done on research
and in developing new technology for diesel and hybrid technology vehicles. . Not even the
launching of new models has been able to attract the consumer, and boost the demand of the
petrol cars. Another way in which consumers can reduce their fuel costs is to purchase a diesel
car rather than a petrol one. Diesel cars are more fuel efficient, and diesel fuel is about 30 per
cent cheaper per liter than petrol.

Petrol Price Rise-The Burning Issue of 21st Century-:

Continuous rise in the oil prices is creating unrest in the world. This bullish trend of petrol price
in India has worsened the condition of the Indian economy, resulting slowdown in industrial
performance and causing resources scarcity. Rise of petrol prices has also affected international
trade, regular currency fluctuations and political regulations. Unlike European countries, heavily
populated countries like China and India are facing the adverse effect. Due to the critical
situation of petrol price rise, car making entities as well as petroleum distributors like Bharat
Petroleum Corporation and Hindustan Petroleum Corporation have registered loss.

Petrol price rise has further increased ownership cost of a petrol fuelled car. As per the Crisil
Research survey, the ownership cost has increased by 12 to 14 per cent over the past 19 months
due to petrol price rise. Since June 2010, petrol prices have climbed 37 per cent after
deregulation of transport fuel prices. It has compelled potential car buyers to think judiciously
before adding cars to their assets. The result of petrol price rise in India was further exposed by
average car sales in the festive season.

As the difference between prices of petrol and diesel in India is around 40 percent, there is a
phenomenal rise in the demand for diesel-engine cars. Apart from flooding the market with
diesel-engine cars, car manufacturers in India are rolling out diesel version of petrol driven car
models. Despite, the high price of many diesel-engine car models, buyers feel satisfied with the
purchase.

Diesel-engine car market that constitutes 30 percent of the Indian automotive market is expected
to catch up and balance the equation with petrol-engine cars in forthcoming years. Car makers
across the globe are offering discounted cars or presenting several lucrative schemes to get nod
of potential buyers, who are discouraged by petrol price rise.

Marketing divisions of car making companies are making constant efforts due to the reduced
traffic at dealerships. Feeling the heat of petrol price, car makers are introducing small cars in
diesel version to cater to largest segment, middle class of India. Going by the long-term
projections, petrol price along with other fuel prices will slowly stabilise and automotive industry
will again be one of the most productive industries in India.

The reluctance of the government to increase the price of diesel has led to a strange situation -
the demand for petrol cars is declining sharply. The argument that the common man will suffer if
diesel prices are raised and hence only petrol should be made dearer is unjustified. There are at
least 100 million motorcycle owners in India, a figure calculated on the basis of the last 15 years'
sales. And despite four-stroke motorcycles in India offering incredible mileage, this price ise
hurts users of bikes which have petrol engines a lot more than the middle class man driving the
diesel-variant of the Maruti Swift.

Diesel is becoming more attractive as a fuel across Europe too, thanks to the incredible economy
of the next generation diesel engines. But in Europe, diesel is priced on par with petrol. Even
though diesel is cleaner than ever before, petrol-engine cars still have superior performance,
which is why there are no diesel-powered Ferraris or Lamborghinis. In India, getting a delivery
position on a diesel vehicle involves joining a long waitlist. For a petrol Ritz, most dealers will
give delivery the day your loan is sanctioned. Buying a diesel Ritz means at least a month-long
wait. The same is true for the diesel-run Hyundai i20, the Volkswagen Polo or the Nissan Micra.

Rising fuel prices will eventually pinch the wallets of all car and motorcycle drivers. But an
absurd subsidy on diesel is skewing the Indian car market and creating a scenario where the
government robs Peter, the owner of a petrol driven 100 cc motorcycle, to pay Paul, who drives a
massive SUV. This is primarily because of the disparity in the fuel prices. Also, diesel engines
are more fuel efficient, which adds to the economy factor and makes them attractive for end
users who drive a lot. Diesel technology has evolved over the years and today's engines are as
clean and efficient as the gasoline engines, making them equally attractive for customers.

MAJOR CHALLENGES OF INDIAN-:

1) Sustaining the growth rate:

There is a potential for much higher growth in the domestic market due to the fact that the
current car penetration level in India is just 7 cars per thousand. The increase in purchasing
power at the top echelon of about 300 million people in the country, where the per capita income
is over US $ 1000, implies that passenger car growth in the domestic market is on the verge of a
major and sustained boom. It is expected that the passenger car market which was 1 million in
2003-2004 can easily cross the 3 million mark by 2015. This can lead to an increase in the size of
the domestic auto-component market from the current level of US $ 9.8 billion (2005-06) to at
least US $ 15 billion by 2015.

2) Need for innovation:

The competitiveness in the sector will largely depend on the capacity of the industries to
innovate and upgrade. The industry will also benefit if they have strong domestic competition,
home based suppliers and demanding local customers. There is no denying of the fact that the
factors like labour cost, duties, interest rate and economies of scales are the most important
determinants of competitiveness.

3) Enhancement of share in global trade:

The global auto component industry is estimated to be US $ 1.2 trillion in value and is likely to
increase to US $ 1.7 trillion by 2015 as per ACMA. Sourcing from low cost countries is likely to
increase from US $ 65 billion in 2002 to US $ 375 billion by 2015. Although Indias exports are
still small (US $ 1.8 Billion in 2005-06 Prov.), it could leverage this off shoring trend and the
quality of its supply base to build dominant top two position in auto component exports from low
cost countries by 2015. A position in the top two would enable India to achieve export of US $
20-25 billion by 2015. This would increase Indias share of world auto component trade from 0.9
percent in 2005-06 to 2-2.5 percent by 2015, inclusive of domestic consumption. Such a high
growth in the Auto component Sector is expected to lead to an additional 750,000 direct jobs in
its sector along-with indirect employment of 1.8 million people over the next 10 years.

CHALLENGES TO GROWTH-:

In present scenario world over, it is an accepted view that competitiveness is no longer totally
dependent on variables like availability of cheap labor and materials, low interest rates and fiscal
incentives. The sustained competitiveness in industry can come only through improvement in
productivity both of labor as well as capital. This calls for continuous efforts for innovation by
the companies. The industry has identified certain factors which are inhibiting the growth of
automotive sector.

1. Availability Fuel Price, Fuel quality and Alternative Fuel-:

A rapidly growing economy demands more supply of energy. As the UN Agenda 21 states
Transportation is the major driving force for the growing demand for energy. It is the largest
end-user for energy in developed countries, and the fastest growing one in developing countries.
Crude oil prices have been increasing and may continue so for a long time due to the speculation
(fear premium) on continuing geopolitical instability. So there is an urgent need to think of an
alternate fuel policy. In the above back drop the development of alternative fuel has gained
greater importance. The Ministry of Non-Conventional Energy Sources is working on the usage
of Hydrogen as a fuel. The work in this area need to be strengthened and expedited. The policies
which promote the commercial production, distribution and usage of such alternative fuel and the
automobiles using this alternative fuel need to be put in place. Besides the emphasis on
commercialization of the alternative fuel, ensuring the availability of the fuel meeting the
standards of Bharat Stage III and IV in time as envisaged in the Auto Fuel Policy is equally
important. It will be of great help to the industry if the availability of Euro IV fuel can be ensured
across the country prior to the implementation of the emission norms. The Ministry of Petroleum
and Natural Gas has indicated that as per the roadmap provided in the Auto Fuel Policy,
progressive fuel up gradation to Euro-IV equivalent and Bharat Stage-III are

Being planned from April, 2010 onwards, to be implemented based on the source-apportionment
studies currently under way. The present Auto Fuel Policy gives a road map till Euro IV stage
and 2010, It is felt that the Auto Fuel Policy beyond 2010 be also drawn now.

QUESTIONNAIRE TO DEALERS OF WHICH SAMPLE SIZE IS 20

1) To what extent does the volume of sales suffer in the wake of a fuel hike?
 Sales

30-40%
20% 25% 20-30%
15-20%
10-15%
15%
40%

Nearly 40% of the dealers feel that 15-20% of sales suffer due to rise in fuel prices, while 15%
feel that 20-30% of sales are affected.
2) Does the rise in fuel prices phenomenon really affect the decision of a potential car
buyer, according to you?

Affecting Decision

Yes, to a great extent

15% 20%
Significantly
Marginal
Don't know-Can't say
30%
35%

Nearly, 35% feel that the fuel price hikes have a significant impact the decision of a buyer.

3) What has been the outcome of these routine fuel price hikes on the sale of petrol, diesel
and CNG variant cars?
 Outcome

20% Sale of petrol cars

Sale of diesel cars
45% Sale of CNG cars

35%

About 45% of dealers think that there is an increase in sale of CNG cars, while only 20% think
that there will be an increase in the sale of petrol cars after a hike in fuel prices.

4) What do you think are the major driving factors for fuel price increases?

Driving Factors

International
20% developments
35% Government Policies
Inflation

45%

About 45% of the respondents feel that the Government policies are the major driving factors,
followed by international developments having an effect on fuel prices.

5) Do you feel the prices of fuels will stabilize in the future?

 Prices of Fuel

15% Yes
30% No
Don't know/Can't say

55%

As much as 55% of the respondents do not think that fuel prices will stabilize in the future, while
30% are hopeful of the prices coming down.

QUESTIONNAIRE TO CUSTOMERS OF WHICH SAMPLE SIZE IS 20

1) With fuel prices increasing consistently, what would u prefer - a diesel, petrol or CNG
car?

Type of Car

Diesel car
35% Petrol car
45% CNG car

20%

With increase in the fuel prices consistently, about 45% of the customers would prefer a diesel
car, followed by nearly 35% opting for a CNG variant and only 20% preferring a petrol car.

2) Would u be willing to spend a little more in order to buy a more fuel efficient car?

Fuel efficient car

15% Yes
No

20% Can't say

65%
About 65% of the customers are willing to spend some extra money if they are able to buy a
more fuel-efficient car.

3) What do you think are the major driving factors for fuel price increases?

Driving factors

International
25% developments
30%
Government policies
Inflation

45%

Nearly 45% of the customers blame the government policies for rise in fuel prices, followed by
30% believe that international developments and 25% thinking inflation to be the reason.

4) Do you feel the prices of fuels will stabilize in the future?

10%
20%

Yes
No
Don't know/Can't say

70%
As much as 70% do not think that the prices will stabilize in the future.

LPG GAS PRICES IN INDIA :

LPG is Liquefied petroleum gas which is a mixture of hydrocarbon gases. LPG is used in motor
fuels, refrigeration, cooking, etc. About 17.5% of Indian households use LPG gas as cooking fuel
according to 2001 census of India. But the urban people used it as the rural could not afford the
prices. In Hong Kong it was the most popular cooking fuel but it subsequently reduced to 24%
due of expansion to town gas to buildings. For the urban Brazilian households it is the most
common cooking gas.

Price as on 18th Jan

Product Price as on 1st Apr 2012 % change
2013
Diesel 46.25/litre 53.71/litre 16.12
Petrol 70.66/litre 74.00/litre 4.72
CNG 32 Rs/Kg 33.95 Rs/Kg 6.09
Auto Gas 53.52 Litre 51.13 /Litre -4.46

The LPG gas price in India is one of the major concerns for some years.
INDIAS OIL AND GAS: A SCENARIO

Oil and gas sector is one of the key catalysts in fuelling the growth of Indian economy. With a
1.2 billion population and an economy that has consistently at approximately 8 per cent annually,
India's energy needs are increasing fast, warranting a robust demand for oil and natural gas in the
country. India has emerged as the 5th largest refining country in the world, accounting for 4 per
cent of the world's refining capacity. India exported 50 million tones (MT) of refined petroleum
products during 2010-11. With our refining capacity increasing further, this figure is likely to
touch about 70 MT by 2014, making India one of the world's major exporters of petroleum
products.

The share of oil and natural gas in India's total primary energy demand is 40 Per cent. The
planned investments span across the oil and gas value chain including exploration and
production, oil and gas pipelines, petroleum refineries, R-LNG terminals, city gas distribution
networks and petrochemical plants.

With an enriched resource position, India ranks second in BMI's upstream business environment
ratings while India shares first place with China in BMI's downstream business environment
ratings. India will account for 12.4 per cent of Asia Pacific regional oil demand by 2015, while
satisfying 11.2 per cent of the supply, as per the BMI forecasts.

In addition, India is also the world's fourth largest importer of oil. The petroleum and natural gas
industry in India has attracted foreign direct investment (FDI) worth US$ 3.280.72 million from
April 2000 to September 2011, according to the data provided by Department of Industrial Policy
and Promotion (DIPP). The Department further recorded US$ 144 million during April
September 2011-12, in the industry.

Oil & Gas- Market Dynamics

Production and Consumption From about 22 million tons per annum (MTPA) during 2004-05,
the import of crude oil from the African continent has increased to more than 35.31 MT during
2010-11. Investment in oil and gas sector over next 5 years is expected to reach US$ 65- US$ 70
billion.
According to the provisional production data released by the Ministry of Petroleum and Natural
Gas in a press release:

Crude Oil production was recorded at 22.44 million metric tons (MMT) for April-
October 2011, as compared to the 21.54 MMT in April-October 2010.
Natural Gas production was 28,431.4 million cubic meters (MCM) during April-October
2011.
During April-October 2011, 96.95 MMT of crude oil was refined, compared to 93.58
MMT of oil refined during corresponding period in 2010.

Oil consumption in India is projected to increase by 4-5 per cent per annum by 2015, indicating a
demand of 4.01 million b/d by 2015.

Diesel & Petrol

India's fuel demand may rise 3.8 per cent in 2012 led by diesel and petrol (gasoline), as per
International Energy Agencys (IEA) forecast. Diesel comprises for about 40 per cent of the total
fuel consumption in India. Its demand is expected to increase to 1.37 million b/d in 2011 rising
by 5.8 per cent and further to 1.44 million b/d in 2012, increasing by 5.5 per cent.

India's petroleum refining capacity is expected to rise to 240 MTPA by March 2012 from the
current 188 MTPA, attracting an estimated investment of US$ 13.5 billion - US$ 14.6 billion.
This will boost the country's exports of petroleum products, according to Mr S Sundereshan,
Secretary, Ministry of Petroleum and Natural Gas. Moreover, demand for petrol is expected to
expand by 7.6 per cent (363,000 b/d) in 2011 and eventually by 6.7 per cent (388,000 b/d) in
2012. The Ministry of Petroleum anticipates a growth of 4.6 per cent in the sale of oil products in
the FY12.

Gas-:
The natural gas demand in India is expected to increase from current 166 million standard cubic
meters per day to 320 million standard cubic meters per 106 day by 2015, as per Global
consultancy firm McKinsey's analysis.

India's share (in the Asian pacific region) of gas consumption in 2010 was an estimated 10.9 per
cent, while its share of production is estimated at 11.1 per cent, according to BMI's Q3 2011
report. BMI expects that the India's share of gas consumption would reach to 11.7 per cent by
2015 while that of supply would stand at 13.1 per cent.

Gas consumption is expected to increase from an estimated 55 billion cubic metres (BCM) in
2010 to 76 BCM in 2015, while domestic production is anticipated to increase from around 45
BCM in 2010 to at least 73 BCM in 2015.

Addressing the Challenge of Volatility in Fuel Prices

One of the major challenges of the world automotive industry is the volatile oil prices. The year
2008 witnessed crude oil prices breaching the US $ 140 mark per barrel, and thereafter slipped
below US $ 40, in the later part of the year. The volatility in oil prices does not directly affect the
growth in automotive industry; however, volatility in oil prices is one of the influential factors in
automobile demand. In order to address the challenge of volatility in oil prices, the automotive
industry is innovating new technologies and inventing usage of alternative energy. Hydrogen
cars, driven either by a combination of fuel cells and an electric motor; hybrid electric
technology; electric vehicles with rechargeable batteries; or alternatively, compressed air
technology to drive the pistons in a specially designed engine, are thought to be replacing fossil
Fuel powered motors in the decades to come.

Emergence of New Generation Automobiles

Innovation is expected to drive the automotive industry in future as the producers are involved in
differentiating their products and services. There are already growing interface of electronics and
IT in the automotive functionalities, such as entertainment, navigation and safety. According to a
survey, conducted by IBM across the auto majors, majority of them felt that by 2020 the level of
innovation would be greater in software and electrical systems of automobiles. It is also expected
that by 2020 the vehicles may become another node on internet, connecting with other vehicles,
the transportation infrastructure, homes and businesses. However, there are challenges associated
with this trend, with regard to consumer acceptance, technological development and adoption of
standards.

Growing Small Car Segment

The volatility in crude oil prices witnessed during the year 2008 re-emphasized the need for
small and fuel-efficient vehicles. Some of the automobile majors have plans to hike their R & D
budget for designing of small and fuel efficient vehicles. Added to this is the need for reduction
in prices to target the middle income groups of population / new buyers, especially in developing
countries like India, where the vehicle penetration is low as compared to the population.

An auto research firm CSM Worldwide Inc. has estimated that global demand for small cars
would grow by 30% per annum to 27 million vehicles a year by 2013. The fast-growing small
cars market has encouraged several global Auto majors (such as Renault, Toyota, and Nissan) to
plan for launch of small cars.

Trendy Cars, Shorter Life-spans

An automobile is a highly engineered collection of complex components, each of which has its
own lifespan and longevity characteristics. While some components require frequent
replacement, others that are relatively expensive are expected to have longer lifespan to justify
the economics of a vehicle buyer. However, change in fashion and design trends may outweigh
the pure economics, which may lead to planned obsolescence. In the world of changing fashion
trends, auto manufacturers are developing new designs meeting the changing consumer
preferences. More frequently the new models are introduced, the shorter will be the life span of
the old models.

Preserving Brand Identity

With growing mergers and takeovers in automobile industry, players are carefully devising
strategies to strengthen the backroom operational synergies, in terms of common logistics and
supply chain management, but avoid losing the brand identities. A group owning different brands
prefers not to use the same platform that has same kind of technology, management, and
designers to preserve the brand identity. In this sense, the automobile sector is different from
monolithic branding strategies of consumer goods.

Emergence of Design Studios

As efficiency in design and manufacturing improves, vehicle manufacturers across the world are
focusing on making models for niche market, though the sale would be in lower volume. This is
in contrast to the earlier strategy of designing models for mass consumption. With the increase in
number of models to be designed and developed, auto majors are outsourcing the designing jobs
to independent design studios who take care of the design and execution of the process
management in the value chain.

Export competitiveness of Indian Automobile industry

The year-on-year growth rates in vehicles production achieved by the Indian automobile industry
have been outstanding as compared to the growth rate achieved by the global automobile
industry. In the year 2007, the automobile production growth rate in India stood at around 14%
as compared to the world production growth rate of 5.4%. Except in the year 2000, when there
was a slump, the Indian automobile industry has performed better than the global average, at the
back of both domestic as well as global demand.

Into Asian markets

Indias automobile penetration in the developing Asian market has been quite modest across all
the segments. This could be seen from the growing penetration index during the analysed period
(years 2001 and 2006), in almost all segments. The contribution index has also grown in all
vehicle segments (except motor vehicles for transport of goods, which has remained constant),
indicating growing share of these vehicle segments in Indias exports to developing Asia.
However, the share of import of identified categories of vehicles in total import of developing
Asia has declined over the analysed period, in most of the sub-categories, indicating growing
manufacturing and self-sufficiency in the region. In spite of such a trend, the specialization index
has grown for all types of vehicles, with some categories, such as tractors, and chassis fitted with
engines, well pronounced than the others.

Fuel Price Volatility

Volatility in fuel prices affects the growth of the automotive industry all over the world. The
effects of volatility in fuel prices are multipronged. Firstly, the cost of inputs in car
manufacturing increases with the increase in oil prices. Polymers, one of the inputs used in
manufacture of vehicles, are a derivative of crude oil. Bulk commodities, such as steel and
aluminum, are also used in manufacture of vehicles; the transportation cost of which is
influenced by oil prices. Secondly, the oil price has an impact on inflation, affecting the saving
and disposable income of the consumers, thereby affecting the demand for automobiles. Thirdly,
the fuel price influences the overall running cost of the vehicle owners; there could be switch in
demand among the vehicle variants, as also research in use of alternative fuels. Thus, the
volatility in oil prices affects the prospects of the industry.

Growing Competition

Competition in Indias automobile and auto-parts industry has been growing in the recent years.
Earlier, the regulatory framework and market conditions positioned the Indian OEMs in
monopolistic or oligopolistic market structure.

As the automotive market in India is evolving through the dynamics of open market and
deregulation, many new players have entered the market. Since liberalization, over 20 new
players entered the market in the passenger car segment alone. Though, there has been depletion
of market share for Maruti Suzuki, it still dominates the passenger car segment. In the two-
wheelers segment too, foreign majors have their presence through joint ventures as also through
their wholly owned subsidiaries. Hero Honda is the largest player in the two-wheeler segment,
followed by Bajaj Auto and TVS Motors.
Findings of research

The research was conducted in the form of a questionnaire which was asked to a few car dealers
and also to some customers. Out of the questions that were asked, it can be understood that the
dealers suffered a great deal whenever there is an increase in the prices of fuel.

Nearly 40% of the dealers felt that the fuel hikes impact to about 20% of the volume of sales
affecting the profit margins. They also feel that as an effect of rise in fuel prices, the sale of CNG
cars might increase by around 45%. The customers also said that they would not mind paying
more if they are able to get a fuel efficient car. They would also not hesitate to use public mode
of transport if there is consistent hike in prices.

The effects can be said as under

Inflation will rise. There is no doubt over the same. In the short term and medium term overall
inflation will rise. But in the long term the higher base effect will negate all the rise. Private
sector oil companies and oil marketing companys margins will rise.

Effect of deregulation of petroleum prices

In June, after recommendations from several expert groups, the government deregulated petrol
prices while maintaining status quo on other sensitive petroleum products with partial price
revisions. Since then, marginal price changes have been effected on sensitive petroleum
products. In spite of periodical price revisions, there is an under-recovery to oil companies across
all the sensitive petroleum products. In the current fiscal year, oil marketing companies are
estimated to record a revenue loss of Rs72, 000 crore.

As per the agreed one-third sharing formula, till date the government has reimbursed
Rs24,000crore in two tranches and another Rs14,400 crore has been paid by upstream companies
by way of discounts. Oil marketing companies are not in a position to bear more than
Rs12,000crore of revenue losses and the government would have to compensate the overall
shortfall of Rs36,000 crore.

Deregulation of prices is, therefore, critical. This will require revamping the tax structure, which
today constitutes 25-45% of the selling price of the fuels. In parallel, the government and the
petroleum and natural gas regulatory board need to provide a renewed thrust to the development
of city gas distribution projects, the creation of a national gas grid, and incorporation of natural
gas in the proposed goods and services tax (GST) reform. This will enable a shift in the energy
mix from the scarce and price-volatile oil to the relatively abundant natural gas. The energy
policy will need to continue to provide fiscal stimulus to the supplementary effort for induction
of energy efficiency programmes and expansion of renewable sector. Energy efficiency is
expected to yield significant lowering of petroleum requirement per capita of gross domestic
product (GDP).
Chapter-10

RECOMMENDATIONS

1) The economy should be able to tide over consistent fluctuating oil prices resulting from global
geopolitical situations, by bringing in adequate measures to sustain the economy from such
crisis.

2) The Government should try and introduce ways so that such hike in prices is not swiftly pass
on to the consumers.

3) The country should be able to increase its own production of crude oil reserves so that it will
not be left dependent on oil producing countries.

4) While increasing its own reserves, it will not only help the country become self-sufficient but
also help it to save valuable foreign exchange from leaving the country.

5) Due to increases in fuel prices it has brought about a change in the production type of vehicles
in India as a lot importance is being given to fuel efficient cars.

6) Introduction of CNG driven cars will help to combat high petrol prices.

7) Use of public transport can be a good way of not being dependent on fuel prices.

8) The Government should try to enter into alliances with friendly countries to try and explore oil
in other countries.

09) The refining capacity of oil should be upgraded by creating more oil refining centers in the
country.
 Chapter-11

CONCLUSION

One of the most important factors that decide the future of Indian economy is the price of
petroleum products. After all a small increase the price of this has got widespread impact on the
Indian Economy. If the price of petrol increases, it increases the transportation cost of various
products, thereby making the companies to increase the price of these products. This causes
inflation in the Indian market and the performance of the economy is affected. Strong economic
growth of India and other developing countries in Asia have increased the demand of petrol and
other related essential fuels, which has resulted in price hike of petrol in India. The solution lies
in finding an alternate source of energy.

Though the idea is good it is not a practical approach to this heavily discussed issue. Another
solution that can be implemented is to create awareness among public about the need to increase
the use of public transport. This is only viable solution in front of us.
 Chapter-12

BIBLIOGRAPHY

Books and Journals :

1. The oxford institute of energy studies, An anatomy of crude oil pricing

system by BassamFattouh published on January 2014.
2. United states Energy Information Agency published crude oil price
volatile,United States Energy Information of Energy. Analytics and
Statistics department published on May 10, 2016,Based upon survey
conducted by Thomas Reuters.
3. Oil Prices: Whats behind the Volatility? Simple economics,The New
York Times published on November 2, 2016,Clifford Krauss.
4. Economics Help Blog published on September 5, 2015,Tejvan and
Pettinger.
5. Government Response to Oil Price Volatility

Websites

1) www.google.com

2) www.siamindia.com

3)MyPetrolPrice.com