Crude oil prices hit USD 130/bbl, highest since 2008; know its impact on Indian markets, economy

Crude oil prices will create an inflationary pressure in Indian markets and may also increase downside risks in the corporate earnings amid higher input cost, Several analysts told Zee Business. Besides, the Indian economy may have additional incremental burden of US $70 billion in the next fiscal. 

The raging geopolitical tensions between Russia and Ukraine has pushed the overall commodity prices to almost all-time high levels, including crude oil and metals. The Brent crude has surpassed its record high levels since 2008 and touched over US $130 per barrel on Monday, as per investing.com. 

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Kotak Institutional Equities noted that increasing risks of global crude prices staying elevated in the next 6-9 months due to large imbalances in the global crude oil markets. An average crude price of US $120/bbl will cost the Indian economy an incremental US$70 bn (1.9% of GDP) in FY23, it added. 

Steep crude prices will pose stiff challenges in the form of higher CAD/GDP, along with higher inflation and lower growth, the brokerage firm mentioned.   

Adding further, it said, “The additional cost will be borne by the government in the form of lower excise revenues and higher MSPs, as well as households in the form of higher retail prices of petroleum products and companies.” 

With respect to impact of markets, Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “The extraordinary uncertainty triggered by the war has pushed commodity markets into turmoil. Crude at $128 per barrel is a big shock. This can impact global growth and aggravate inflationary pressures. In India, growth will be lower and inflation higher.” 

He added, “Market is slipping into bearish territory. Investors must be cautious. There is relative safety in energy due to high energy prices, metals due to high global prices and export segments due to resilient demand and rupee depreciation.” 

Vijayakumar advises investors to indulge into calibrated buying in very small quantities may be considered in the above-mentioned segments. 

Similarly, another market expert Likhita Chepa, Senior Research Analyst, Capitalvia Global Research said, “Traders may be concerned, as a private assessment decreased India's economic growth prediction for 2022 to 7.8 per cent, citing the impact of the Russia-Ukraine conflict on exports as well as rising oil prices producing ripple effects.” 

On Currency, she said, “The rupee is expected to weaken more against the US dollar, while rising commodity prices would raise inflation, according to the report. The Indian financial sector, on the other hand, is likely to stay resilient.”