INSUBCONTINENT EXCLUSIVE:
By DK AggarwalThe unwelcome combination of rising oil price and a weakening rupee is giving a tough time to investors, especially when the
Now the billion dollar question is: will the rally in crude oil prices continue
Current account deficit is another concern
Currently CAD is estimated at 1.9 per cent for 2017-18.
RBI estimates that for every $10 a barrel rise in oil price, GDP growth reduces by
If fiscal and current deficit widen, it is going to affect macroeconomic mathematics
The strengthening of the dollar index is putting extra pressure on payment bill
In the international markets, crude prices increased by 28 per cent, while our weak currency turned crude oil 48 per cent dearer.
This is
evident from the table below
Source: SMC ReutersProduction cut by OPEC and some other countries over the past few years has squeezed supplies and an increase in US
production has been nullified by the demand growth worldwide
The rise in dollar index has made crude dearer for importing countries, as they pay in dollar
In three years time, crude prices has risen from $25 a barrel to above $75 a barrel, and this is seen as a serious threat for India, which
is the third oil largest importer worldwide.
However, it is expected that crude prices will not sustain at higher levels for long, as the
market is not so much supply squeezed
The market is overreacting to the imminent sanctions on Iran from the first week of November.
Some countries are prepared to bridge the
supply deficit which will get created after Iran sanction; Iraq is planning to increase oil exports from its southern ports to 4 million
barrels a day (bpd) in the first quarter of 2019
Global growth forecast has been cut down to 3.7 per cent from 3.9 per cent for 2019, which should lower oil demand
The US is pumping more oils, which may calm down the prices to some extent.
On the flip side, a sharp fall is also not expected as there
Winter is approaching and heating demand will prevent any sharp drop.
For the Indian government, bringing fuel under the GST will reduce
government revenue by nearly Rs 2 lakh crore
If the government goes with this, it would be a courageous haircut
If the Asian premium which India, Japan and China are paying to Opec reduces, it may save $3-8
However, it looks difficult at this juncture
The upside is capped at $85 and once the Iran issue is resolved, prices will come down to $68 -65 levels.
(DK Aggarwal is Chairman Managing
Director of SMC Investments Advisors)
