Brent Crude oil prices have risen by about 10 percent since December and are expected to surpass crucial hurdles around $70/bbl tracking geopolitical concerns.
Crude Oil prices witnessed a steep rise on news of the assassination of a top Iranian general by the US in an airstrike at Baghdad airport which triggered risk-off sentiment in markets and pushed oil prices on the upside.
Experts are of the view that crude oil prices are likely to remain at elevated levels in the next few weeks and we could see Brent Crude surpassing $70/bbl in the short term that would result in high inflation in oil-importing countries like India.
“After easing of tension between the US and China, and output cuts undertaken by OPEC and its allies, crude oil prices were already rallying,” CARE Ratings said in a report.
“Now coupled with the US airstrike, price of Brent has the potential to increase and cross the $70/bbl mark in the coming few days, depending on the retaliation planned by the Iran government and the longevity of the feud is continued by both the countries,” it said.
Any increase in the price of crude oil is always going to be a cause of concern for India considering it imports more than 80 percent of oil requirements.
According to the CARE Rating report, in the current financial year, India has imported 4.5 mb/d (April-November) of crude oil and the import dependency based on consumption which has increased to 84.5 percent compared with it being 83.3 percent a year ago in the same period.
Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities said that the recent tensions between the US and Iraq escalating strongly due to US airstrike killed key Iranian and Iraqi military personnel, raising concerns that escalating Middle East tensions may disrupt oil supplies.
Trivedi is of the view that Brent Crude can rally over $70/bbl and domestic MCX can touch 4,700 in this cross border tension.
Increase in crude oil is likely to impact current account deficit as well as the fiscal deficit, inflation trends, and could possibly increase the production cost of companies that use crude oil as raw material cost.
“OMCs (oil marketing companies), tyre and paint stocks will be impacted most with higher crude prices and may see correction,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told