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Moneycontrol Pro Panorama | Falling oil prices music to India’s ears

In today’s edition of Moneycontrol Pro Panorama: The Weekly Tactical, Karur Vysya Bank makes a point, jobs are back but, Ather throws down the EV gauntlet, founder CEOs in a tight spot, Personal Finance, behind Apple stock's unusual move and more

December 03, 2021 / 02:05 PM IST
Representative image: PTI

Representative image: PTI


Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

There were expectations that the sharp fall in crude oil prices could get interrupted if the Opec+ meeting ended on a hawkish note, and the group of oil producing nations deciding against a planned hike in output. But no such thing happened.

In the run-up to the meeting, the US and a group of oil buyers — including China and India — decided to release part of their strategic petroleum reserves to calm hot oil prices. The symbolism of the move was not lost although the real impact was predicted to be minimal. But the Omicron variant has emerged as a new threat, sparking a risk-off trade in many markets, including commodities. The net effect was that Brent crude had fallen from $80 a barrel levels as of November 25 to $70 a barrel at present.

This sharp fall in a short span had raised fears that oil producing nations may put pressure on Opec+ to delay the planned increase in output by 4,00,000 barrels a day from January 2022. But the US used its economic and diplomatic heft to good use and negotiated with Saudi Arabia, according to news reports. After Thursday’s meeting, Opec+ announced that it will stick to its plan.

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While this surprised analysts who had expected a tougher stance from Opec+, the market itself was not very worried by the move, as crude oil prices did not fall much. The US also offered to delay its planned release of strategic reserves, if oil prices fell substantially below current levels, according to a Reuters report.

The decline in oil prices can be an advantage to India, a net importer. In fact, in November, we hit a record high trade deficit of $23 billion. Oil imports were the main contributor to this figure, as oil imports at $14.7 billion in November were up 132 percent over a year ago and contributed to 27.6 percent of total imports.

One reason for the increase is the near doubling in Brent crude prices over a year ago, till October. An easing in prices should provide some relief on the trade deficit front, as India’s import bill will decline. The bigger impact could be on fuel prices as rising retail fuel prices are taking a toll on inflation, adding both to producer costs and pinching consumer household budgets. Once the lower crude oil prices begin to land at the refinery gate, one can expect some respite in fuel prices.

Eventually, if crude oil prices stay at these or even lower levels, companies across the board could see costs decline and then pass them on to consumers. Lower crude prices also have some effect on vegetable oils such as palm and soy oils, which find use as biofuels, as also cooking oils. A decline there could mean a further lowering in India’s import bill (3.3 percent of imports in November and up 79 percent over a year ago) and bring more relief to consumer budgets. FMCG companies have increased and plan to continue increasing prices for mass consumption products such as soaps and detergents due to the sustained increase in input prices.

The crude oil windfall seems too good to be true. The hope is that it stays at current levels or below them. Fingers crossed.

Investing insights from our research team:

Weekly Tactical Pick – IIFL Wealth

Apex Frozen Foods: On the cusp of an upcycle

Deep Value Series: Karur Vysya Bank, a rerating candidate

What else are we reading today?

Herd Immunity Tracker: New variant poses fresh challenge

The Jack Dorsey dilemma for India’s new founder CEOs

Jobs have come back, but what kind of jobs?

A comprehensive MSP is impractical, so what’s the solution then?

What’s up with rural demand?

Is there some joy at last for savers?

Ather vs Ola | Slow and steady might still be the way forward

How the cryptocurrency rush added to the semiconductor crisis

Apple’s unusual trading points to options explosion and Reddit boards (republished from FT for MC Pro subscribers)

And, in Personal Finance

Personal Finance: Managing risk to reach your financial goals comfortably

Technical Picks: Apollo Hospitals Enterprise, Adani Enterprises, Poly Medicure and CDSL (These are published every trading day before markets open)

Ravi AnanthanarayananMoneycontrol Pro
Ravi Ananthanarayanan

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