The trouble in the Middle East which has most of the OPEC countries in the belt is a potential threat to India, that too in a much more significant way than any of the developed or emerging economies. The international crude oil market has already factored in the distress in the Middle East countries.
The problem for India is not only that they are the 8th largest net importers of oil (1,200,000 barrels per day), but 21st when it comes to oil reserves. The steep rise in international crude oil prices not only means havoc for the Indian Oil Marketing companies but the countries fiscal health as well. Currently the OMC’s (Oil marketing companies) in India are losing 1 lakh crore by selling petroleum products at subsidized rates. The government has decontrolled petrol prices which already is fuelling inflation amid rising food inflation and a strong need is felt to decontrol diesel prices otherwise another subsidy burden awaits the government.
All said and done the problems in middle-east might ease out in sometime but it will be pretty optimistic to think so, in such events any country who has a reasonably good oil reserve will not face as many issues as a country like India which runs to the spot market every now and then to buy oil. The U.S has been able to increase its strategic crude oil reserves to a decent 60 days of storage where as India has been forced to buy spot at peak rates due to low strategic storage capacity of its refiners and stockist. Of late, India has started building a grossly inadequate strategic crude storage capacity of two weeks compared to the 60 day storage capacity of U.S and 90 day capacity of Germany and France. Even China which is at times inappropriately considered India’s peer has embarked on a project to store 90 days of oil by 2020 to meet its energy security.
The solution…………don’t we all know that.
Hi Abhishek,
ReplyDeleteIn my view we may not see a Steep Rise in Oil Prices because of the very Fundamental Reason that.....we have not seen any change in demand. Today we are in a complete different scenario to what we saw in 2008 when Crude touched $140/Barrel
The OPEC nation themselves don't want to create a Bubble in Crude at this Stage because if the bubble burst it not good for them, we all have seen its effect on Global Markets.
Also, In Past 1-2 Yr OPEC has not increased Crude Supply. If crude goes lets say, $105-110/Barrel, OPEC will have to increase its Supply to check Crude Prices.
Also look at Dollar Index, the whole world was expecting Dollar Index to move down, but it is moving in totally reverse direction. The Dollar Index is slowly moving up.Its losing its downside strength.
Also the large moves that we have seen in Global Asset Class before 2008, its very difficult to go to those level for any Asset Class.
To the surprise of everyone, its only S&P 500 which looks like it may be above its 2008 levels(One can understand strength in USD)
The EM's Equity Markets are struggling to move up, Crude went up till $91, but quickly corrected. Remember there lot of Natural Gas supply thats coming up in USA in form of Shale Gas; which would keep Crude & Gas Prices check.
In my view, India need not worry about Crude Prices for 1 Yr Horizon. bcos it will take a while for it to consolidate.
But surely India will have to prove itself on Fiscal Deficit, egovernance, FDI front.
Lets see what we have in 2011.......