Shifting of Crude Oil pain

In early October this year the emerging economies predominantly India was worried about crude
increasing rapidly on its price. Many of analyst expectations that it will not go beyond $63 went wrong, it moved past $80 and there were pessimists in the forefront talking that it will soon cross $100 and will bring big challenges for India on its CAD, the government on its elections, inflation etc. Oil going up continuously even defying its own weakness on technical made many who thought that pain of oil price to the world is behind us were also made to believe that it will have some more damage done to the growth of developing economies.

For the Oil producing countries, there seemed that they were the lords of the world, dictating terms
on price front threatening of production cuts to jack up price. At times it felt like they were enjoying
the pain that the emerging world was undergoing.

Within 40 days the story turned upside down. On 5th October, oil was at $84, it is overvalued on the
charts. On 21st November, it was $63, going straight to undervalued zone. Now the talks of the global media also have changed. So far, it was a concern that the emerging world is at pain. Now, thoughts of global slowdown has come.

Mercy thoughts are flowing in support of the oil producers. Saudi wants price to be above $73, to meet its budget plans. Russia says $70 is ok for us and we cannot stop our companies from producing as it will bring pressure to their capital. US says even $68 is ok for them.

Emerging countries are in party mood. In India, pressure on the Government to bring down taxes on
oil when price kept moving higher has now brought double benefits to the users. Oil price is down
and along with that lower taxes, it is big savings for the consumers and in a election year, there will
be no increase of taxes so, it is time now to enjoy lower pump prices.

So much in just 2 months. What took more than a year for the bulls to move up oil prices only took
40 days for the bears to damage. This is why it is said that, Bulls climb by the stairs and Bears jump
out of window.

In a couple of years from now the importance to Crude Oil as a product will be history. For immediate periods, Crude will try to move up in price, while it will find resistance on every upside rally and bears will bring prices down. At least 2 such events of lower price penetration will be there before we have any significant upward movement in prices of Oil.

About Author

Ramesh Sigamani

Related posts

Budget 2019 & industry view on it…..

Just back from a meeting with Manish Gunwani, CIO of Reliance Mutual Fund. His views about our markets are that we are at a sweet spot where India markets will perform well. Election outcome if the seats are in the range of 180 to 250 for BJP, markets will...

Read More

Give a Reply