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Is oil off the boil?

Oil prices plunged to a three-month low of $118 raising hopes for a turnaround in crippling finances of India’s oil companies. HT Correspondent reports.

business Updated: Aug 05, 2008 20:42 IST

Oil prices plunged to a three-month low of $118 raising hopes for a turnaround in crippling finances of India’s oil companies.

The sharp fall in crude prices would also provide comfort to India’s policy makers, who were dreading a possibility of another retail price hike around October if the high crude prices sustained.

Crude prices have fallen 18 per cent from a record high of $147.3 of July 11. India’s crude basket price has averaged $122.3 during the last four months.

Analysts said that leading indicators suggest lower oil prices in the coming year and a turn in the cycle.

“Unless Organisation of Petroleum Exporting Countries (OPEC) refuses to boost production, 2009 prices should soften, averaging $93 a barrel,” said Michael Waldron of Lehman Brothers. “Furthermore, demand, especially in China and other emerging countries, has the potential to cool for structural reasons.”

Former petroleum secretary MS Srinivasan had said in Madrid recently that “(The) Situation will be revisited in October when we will take stock of the scenario emerging out of international oil prices.”

Stung by skyrocketing global crude oil prices government announced a Rs 5 a litre increase in prices of petrol, Rs 3 per liter on diesel and Rs 50 per LPG cylinder in June.

Eminent economist and adviser to the United Nations, Jeffry D Sachs, expects a further dip in oil prices.

“Nobody knows (the future) and definitely not me but I would not be surprised if it stays below $100 for any long period of time because I believe the fundamentals will keep itself above $100 per barrel,” Sachs told Hindustan Times.

The latest fall in prices have also been attributed to reports that tropical storm Edouard seemed less likely to disrupt oil and natural gas output in the Gulf of Mexico. It has also fallen on signs of declining demand in the US, which consumed about 24 per cent of the world’s crude in 2007.

Higher petroleum product prices carry the danger of fuelling the inflation rate further up as a worried government grapples with policy options to contain a runaway price line that has already risen sharply to 11.98 per cent last week.