Further, an impending hike in its main refinancing rate by 25 basis points, the European Central Bank, thanks to the rising inflationary pressures, is also contributing to the slump in the dollar.
With the dollar dropping, investments were diverted to oil, traders said. Also, as the equity market, world over, is subdued, hedge funds and pension funds are parking their investments in the crude, counter leading to heavy rallies fuelled by good volumes, a broker said.
Meanwhile, a market correction for oil prices is expected after it hits $150 a barrel. “There has been an unprecedented rally ever since crude touched $90, and there has been no correction ever since. It will come down to $110 after this correction,” a broker said. Oil prices have already gained 50% this year.
DK Joshi, principal economist, Crisil said, “We feel that crude will settle between $110-120 per barrel once demand is moderated with various countries increasing prices of oil.
There is already a slowdown and demand will moderate, even as supply has not risen. At this stage, I do not think we will revise our estimates. However, if oil touches $200 per barrel by year end, it will be a scary scenario that will have a detrimental impact on the oil subsidy bill.”
While countries, including India, have raised prices by as much as 10%, Malaysia has hiked prices by 41% and Indonesia by almost 30%. Cases like these will moderate demand. On the other hand, oil exporting countries have maintained exceptionally low prices — petrol in Venezuela costs Rs 2/litre.
Also, oil producing countries such as Indonesia, Russia, Saudi Arabia and Venezuela face double-digit inflation rates ranging from 10.5% to 29.3%.
So, what does this recent hike means for India? Prices of other oil products that are linked with international prices of crude, will go up significantly.
Already, the hike in prices of naphtha, furnace oil and other products are contributing as much as half of the overall increase in inflation on account of oil. The most disturbing fact about the present crude oil crisis is while global oil consumption grew by 1.1% or 1,000,000 barrels per day in 2007, the global oil production fell by 130,000 barrels per day.
Last week, finance minister P Chidambaram had said increase in oil prices was due to “unregulated over-the-counter markets and futures trading in oil”.
At the recently held meeting of energy ministers in Jeddah, he proposed a Price Band Mechanism. As per this, consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level.
With the dollar dropping, investments were diverted to oil, traders said. Also, as the equity market, world over, is subdued, hedge funds and pension funds are parking their investments in the crude, counter leading to heavy rallies fuelled by good volumes, a broker said.
Meanwhile, a market correction for oil prices is expected after it hits $150 a barrel. “There has been an unprecedented rally ever since crude touched $90, and there has been no correction ever since. It will come down to $110 after this correction,” a broker said. Oil prices have already gained 50% this year.
DK Joshi, principal economist, Crisil said, “We feel that crude will settle between $110-120 per barrel once demand is moderated with various countries increasing prices of oil.
There is already a slowdown and demand will moderate, even as supply has not risen. At this stage, I do not think we will revise our estimates. However, if oil touches $200 per barrel by year end, it will be a scary scenario that will have a detrimental impact on the oil subsidy bill.”
While countries, including India, have raised prices by as much as 10%, Malaysia has hiked prices by 41% and Indonesia by almost 30%. Cases like these will moderate demand. On the other hand, oil exporting countries have maintained exceptionally low prices — petrol in Venezuela costs Rs 2/litre.
Also, oil producing countries such as Indonesia, Russia, Saudi Arabia and Venezuela face double-digit inflation rates ranging from 10.5% to 29.3%.
So, what does this recent hike means for India? Prices of other oil products that are linked with international prices of crude, will go up significantly.
Already, the hike in prices of naphtha, furnace oil and other products are contributing as much as half of the overall increase in inflation on account of oil. The most disturbing fact about the present crude oil crisis is while global oil consumption grew by 1.1% or 1,000,000 barrels per day in 2007, the global oil production fell by 130,000 barrels per day.
Last week, finance minister P Chidambaram had said increase in oil prices was due to “unregulated over-the-counter markets and futures trading in oil”.
At the recently held meeting of energy ministers in Jeddah, he proposed a Price Band Mechanism. As per this, consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level.
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