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Oil boils, Sensex recoils

After posting a freak recovery of 703 points on Wednesday, the Sensex reverted to its downhill journey, tumbling 571 points, reports HT Correspondent.

business Updated: Jul 03, 2008 23:46 IST
HT Correspondent

It was oil today. It will be inflation tomorrow. And as this cycle of oil-driven inflation continues to plague the Indian economy for the next few months, the Sensex will flirt with the two, with a near-term perspective being one of gloom.

After posting a freak recovery of 703 points on Wednesday, the Sensex reverted to its downhill journey, tumbling 571 points on Thursday.

The fall came as global crude prices touched a record $145.75 per barrel and European Central Bank raised its key lending rate in a bid to curb inflation that has surged to worrisome levels worldwide. The European move reinforced fears that central banks across countries are far from bringing an end to monetary tightening as rising crude prices continue to stoke inflationary pressures.

The latest spike in crude prices heightened fears back home that retail fuel prices, which were sharply raised only a month ago, could head for another revision.

“At the time of Cabinet decision in June (on oil price hike), we agreed that we will take stock of the situation in October. We do not expect any price revision between now and October,” the Press Trust of India quoted Petroleum Secretary M. S. Srinivasan as saying on the sidelines of a petroleum conference in Madrid, Spain.

Global crude prices have more than doubled from $70 a year ago on back of rising demand, speculative trading and ongoing geopolitical conflicts that have threatened to disrupt supplies.

President of Organisation of Oil Exporting Countries Chakib Khelil cautioned last week that crude could rise to $150 dollars or $170 dollars later this year.

“Despite the jump in oil prices, demand for energy continues to rise. Every major region saw higher consumption, with Asia up the most and Europe the least,” said David Wyss, chief economist with Standard and Poor’s.

“The bottom line is that the future of oil prices remains very uncertain. No one knows how much oil is available or how expensive it will be to get it out of the ground.” Research has shown that between 1997-2008, the aggregate world demand has increased by 18 per cent but supply has increased by 15 per cent.

“The bulk of the increase in demand has come from China and other developing economies where 83 per cent of the incremental demand has come during the last 11 years,” said Anmol Agrawal, an analyst with IDBI Gilts.

The spike in crude prices hurts India more than many other countries, as this South Asian nation imports more than 75 per cent of crude it needs to keep its economy going.

The Indian government expects its crude import bill to rise sharply to $110-120 billion this year.

Its decision to increase petrol and diesel prices last month by Rs 5 a litre and Rs 3 a litre last month has already pushed the inflation rate to a 13-year high of 11.42 per cent.