Rising Oil Prices Resurface as Big Macro Worry for Indian Economy: ASSOCHAM

With Indian basket of crude oil rising by 11 per cent in rupee terms in the last 8-9 days, volatility in energy prices has re-surfaced as the biggest worry for the Indian industry and the policy makers, according to an ASSOCHAM paper.

In dollar terms, the prices of the Indian crude basket have gone up by over nine per cent between the pricing for the fortnight of May 1, 2015 and May 7, from USD 60.30 l to USD 65.81 per barrel, while in rupee terms, prices have shot up by 11 per cent from Rs 3789.86 to Rs 4203.94 per barrel.

"The worry is being aggravated by the pressure on rupee as crude is looking up in the international market.

While it is early days to press the panic button, caution and a contingent plan should be in order if the situation gets worsened by Monsoon deficiency, going forward," the ASSOCHAM paper said.

Upward revision in the pump prices every fortnight by the oil companies - if rupee further weakens and bullish sentiment returns to the energy- would not make good headlines for the economic sentiment, it said.

"While it was a great news for India when the crude prices came down significantly from USD 105 per barrel all the way down to USD 45 per barrel, now is time for caution and care for all the stakeholders- consumers, industry, government and the Reserve Bank of India, ASSOCHAM Secretary General Mr D S Rawat said.

Like governments, central banks , the industry hates uncertainties and volatility. But then the hard fact is one has to keep ready for any volatility, especially learning from the way it fell .

" If prices could fall so sharply in a matter of few months, the reverse could also happen. The big question now being asked is will it now rise further".

Some analysts say that while the prices were falling, the biggest producer Saudi Arabia had a game plan in the price war, so to speak.

It had an eye on the capex spending in the global oil economy and the supply situation in the US. The supply situation , reports suggest , in the US is turning weak , setting the stage for the oil price war to end.

"That is not a good news for India, which is on the cusp of recovery, but the macro factors are suddenly turning weak, poor outlook of Monsoon including. ".

In fact, one of the reasons for Saudi Arabia to increase the production is a belief that it is only through some aggressive pricing of keeping the crude oil prices below USD 50 per barrel that the competition from shale gas in the US can be checkmated.

However, slowdown in the Chinese economy can still be a good news for the oil prices since subdued growth in China can dampen the crude demand, thus affecting its prices.

Meltdown in energy prices had a resounding effect on inflation in general in the last one year.

At the global the annual inflation for energy was down by 50.2 per cent in January. It could be having some nexus , either cause or effect, or part of the overall commodity cycle.

But the annual global inflation for a variety of other items such as raw materials, metals and minerals went down by 12.2 per cent and 16.2 per cent respectively in January, 2015 over the same month last year.

Goodreturns.in