Investing.com | Sep 17, 2019 17:35
Crude oil prices have shot up by about 13% this week from less than $54 to around $62 at the time of this writing. Brent Oil Futures prices have also shot up from $60 levels to $68 levels. This spurt happened due to attacks on two Saudi oil facilities, disrupting the global demand-supply balance of oil.
As a result of this spike, Nifty suffered from a steep fall of 1.7% in today’s trade, although some of the loss in Indian markets can also be attributed to the global situation, especially China. China’s industrial growth rate fell sharply to a 17-year low affected by a slump in its manufacturing sector. Clearly, the trade war with the US is impacting China here.
But why crude oil prices are so crucial for India? Crude oil has been the most valuable commodity that India Imports and accounts for more than 25% of India’s overall Imports. India meets more than 80% of its Oil needs through Imports. Any sudden increase in imports cost widens the Trade deficit numbers for India, which in turns impacts the Current Account Deficit (CAD). Widening of CAD could stoke inflationary pressures.
This is to remind you that RBI has already cut interest rates by 110 basis points this year, mainly due to slowing growth and benign inflation. Growing inflationary pressures due to a spike in oil prices could force RBI to tighten interest rates in its future meetings, which could be even more detrimental to India’s GDP growth. Another impact of higher crude prices is the depreciation of Rupee. The Rupee depreciated by more than 1% against Dollar (see USDINR) since yesterday and is trading at just below 72 levels.
This shows how much India depends on crude oil prices. Oil marketing companies stocks took a big hit today, with Bharat Petroleum (NS:BPCL), Hindustan Petroleum (NS:HPCL) and Indian Oil (NS:IOC) all steeply declining by more than 2.5%.
Written By: Investing.com
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