Bonds, Currencies & Commodities
Crude oil prices to remain range-bound, but below $90 a barrel: Analysts

Despite the financial measures that the US is trying to push through, American demand is expected to stay suppressed due to the faltering economy, and prices are expected to remain in check

Global crude oil prices, which hit a new two-year high of $88 a barrel on Thursday, will not rise much and will remain range-bound below $90 per barrel, say analysts.

In a report, BRICS Securities said, "We expect oil prices to average between $70-$80 per barrel at least till FY12, even as global demand crosses 2007 levels in 2010. The likelihood of demand flagging appears limited as global governments are determined to stimulate their economies at (the) slightest hint of a slowdown. With no large incremental supply expected, we have assumed the long-term oil price at $75 a barrel."

Global oil prices dropped below $87 a barrel in Asian trade today due to a decline in regional stocks amid a strong dollar. According to the US Department of Energy, oil prices surged after a decline of 3.3 million barrels in US crude oil stockpiles in the first week on this month.

"This is a seasonal phenomenon, as in the US, this is the hurricane period which leads to supply disruption. In this season, demand for heating oil and diesel is always high and the drop in inventories is just a weekend activity. Until the trend continues for eight to ten weeks, we can not jump on this demand trend," an analyst from Emkay Global Financial Services Ltd told Moneylife.

The depreciation of the US dollar is pushing up oil prices. However, high prices will not sustain until the world's largest oil-consuming country recovers completely.
On the subject of recovery, according to Nobel Laureate economist Joseph Stiglitz, the US Federal Reserve's policy of quantitative easing will do little to boost the US economy. The recent bout of quantitative easing by the Fed has boosted commodity markets. However, crude prices may remain in check due to the long road that the USA has to limp along for economic recovery.

"The falling dollar and the quantitative easing measures by the US Federal Reserve are supporting commodity prices; but oil has remained at the downside compared to other commodities because there are still concerns over the US and European economies. So until there is concrete growth in the US economy, oil prices will not reach $100 a barrel," the analyst from Emkay added.

Mayur Matani, research analyst, ICICI Securities, said, "The Organization of the Petroleum Exporting Countries (OPEC) has predicted that crude oil prices will remain around $74-$75 a barrel for this fiscal year. Over a period of time, crude oil prices will be about $80 a barrel, where (both) oil-consuming companies and OPEC are comfortable."

"Many stimulus packages are being poured into markets by the US and a few European countries. This has already fuelled oil prices - they touched $88 a barrel recently. And to touch higher levels of crude oil prices, more stimulus packages are required, which seems difficult at this time" added Mr Matani.

However, some market pundits are also predicting that oil prices would be seen at $100 a barrel. According a report which quoted Dallas-based energy investor T Boone Pickens, oil prices will rise to $90-$95 a barrel next year, and may touch $100.

However, Mr Matani told Moneylife, "It's difficult to touch the level of $100 a barrel. The economic situation in the US and European countries is not encouraging. Prices may touch $95 a barrel on speculation, but it would be difficult to sustain prices at this level. I don't think crude oil prices would go beyond $90 a barrel."



V Malik

7 years ago

Good article, thanks.

However, it is not just the price of benchmark crude at loadport which is relevant, but also the rapidly increasing cost of transporting and converting this crude oil into usable products.

That the increasingly stringent requirements for cleaner low sulphur fuels as well as the rapidly increasing cost of ensuring safe passage of crude has gone up by almost 100% or even more in dollar terms, and even more when calculated in SDRs or some other currencies, needs to be factored in too.


Sharad Matade

In Reply to V Malik 7 years ago

Thanks sir for your suggestion. Next time I will definitely take that factor into account.

Anant concerned about declining industrial growth

New Delhi: Chief statistician TCA Anant today expressed concern over slow industrial growth for two consecutive months of August and September, reports PTI.

"I am disappointed by these Index of Industrial Production (IIP) numbers. We have got poor numbers for two consecutive months - August and September.

As the finance minister has said, I think we need to take careful look", he said.

The chief statistician, however, said that the country would end the fiscal with double-digit factory output expansion and 8.5% gross domestic product (GDP) growth.

"I expect overall IIP growth this fiscal to close at 10% because of the onset of festive season and agriculture produce hitting market in November, December and January," Mr Anant told reporters here.

He elaborated there was a tendency for industrial activity to pick up with the start of the festive season and rise in purchasing power with farmers selling their produce in these three months.

Industrial growth slowed down to 4.4% in September, about half of 8.2% in same month last year. Similarly, the IIP growth for August was 6.91% against 10.50% in the year-ago period.

However, industrial growth for the first six months of this fiscal stood at 10.2% against 6.3% a year ago.

Perplexed by this phenomenon, finance minister Pranab Mukherjee said, "We will have to analyse why that is happening. And after that considered comments can be made. But it's a matter of concern."

On the GDP growth this fiscal, Mr Anant said, "It seems agriculture growth would be much better than last year. I will still be comfortable with projection of 8.5% (GDP growth) which is our original estimate."

About high inflation numbers, which had rocked the last two Parliament sessions, he said, "It is coming down and it would be closer to 7% by December."


BHEL for Chinese cos setting up production base in India

Kolkata: Demanding level-playing-field, state-run power equipment major BHEL, which is facing uneven competition from cheap equipment supplies from China, today said that Chinese firms should set manufacturing bases in India, reports PTI.

"Since duty on capital goods equipment for power sector is zero, Chinese equipment supplies are posing a price threat and affecting margins," BHEL's executive director A V Krishnan unit told reporters here.

He added that on the top of that the Chinese government is also subsidising their exports.

Mr Krishnan said on the other hand, Indian suppliers are paying sales tax and excise duties. He said that taking everything into account, Chinese equipment is becoming 15% to 20% cheaper as compared to Indian supplies.

This, he said, can be addressed correctly only if Chinese companies started manufacturing in the country.

Saying that BHEL is poised to meet India's energy demand in the 12th Five Year Plan, Mr Krishnan stated that BHEL is increasing capacity from 15,000MW per annum to 20,000MW by March 2012.

He said that this would match the Planning Commission's target of increasing one lakh MW during the next plan period.

Mr Krishnan said that 5000MW capacity addition would involve an investment of Rs800 crore.

Mr Krishnan said that BHEL's order book as of date stood at Rs1,52,000 crore.

He said that the company's Trichy plant, which was the boiler manufacturing unit, is now producing specialised boilers which would suit all types of coal.

The BHEL official said that the company has also designed boilers which would use lignite as fuel.

Mr Krishnan said that the company has six production bases across the country which included Haridwar, Bhopal, Hyderabad, Ranipet near Chennai and Mangalore.

Referring to Chinese power plants, he said that plant load factor (PLF) of BHEL plants are much higher.


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