Thursday, May 22, 2008

Come on baby, light my fire

You know that it would be untrue
You know that I would be a liar
If I was to say to you
Girl, we couldn't get much higher ( than $ 135 a barrel :-))
Come on baby, light my fire
Come on baby, light my fire - The DOORS


Well how much higher is oil going to go. At over $ 135 dollars a barrel it sure is going to burn down a few economies including us.

Are we at the beginning of the beginning or are we nearing the end of the end of the bull run that we have seen in oil. I for one have no clue on this one.

But I know that the current subsidy situation that exits in India and countries like China, Indonesia etc is unsustainable. Demand needs to start contracting as it is in the countries that are passing thru the cost to the consumers.

We are anyway burning down the oil marketing companies with the subsidy bill.

I don’t think markets in India have factored in the implication of oil other than downgrading a few auto stocks or companies which use petroleum derivatives as inputs, or the interest rate sensitive’s.

Sustained oil prices at this level will start affecting both the world and the Indian economy in a more dramatic fashion and could induce some paradigm shifts. Both politically and economically.

I m more worried with oil at $135 than I was when the markets were sub 15000.

2 comments:

Nandy said...

Hi Ninad,

You could check out the article written by Professor TT Rammohan (IIM-A) in his blog about this issue. He is not pessmistic and has his reasons. Already we're getting news about a possible removal of subsidy on petrol (not on diesel). That could ease things out.

Ninad Kunder said...

Hi Raj

I have read Prof Rammohan's views on the same.

I would want to quote Keynes here "Markets can remain irrational longer than you can remain solvent".

The oil market has a lot of froth but one doesnt know when the froth will get washed away. Oil could come down to maybe $100 a barrel but even at that price the hole that it will create is significant.

The fundamental shift is on a diff note. We have seen a era of low inflation, low interest rates and hence liquidity across the globe resulting in bubbles in real estate, equities and now commodities. If we were to fundamentally shift to a phase of high inflation and interest rates we could see some serious compression of liquidity induced bull markets.

Cheers

Ninad