Crude oil may touch $175 a barrel by Diwali: Experts

Skyrocketing crude oil prices are likely to continue the upward march and could reach 175 dollar a barrel by Diwali unless there is significant decline in demand from growing economies, analysts say.

Crude oil prices have risen by about 40 dollars since March. Currently on New York Mercantile Exchange, oil traded near record high levels around 142 dollars.

"Considering the current situation and pace of price rise, crude oil rates may go up to 175 dollars per barrel in the global market. Prices may get fresh triggers, if Israel attacks Iran this year which would affect Mideast supplies," Religare Commodities Head (Commodity Business) Jayant Manglik told reporters.

High volatility spurred by uncertain geo-political tensions, slumping US economy and spiralling demand across the world would continue to support the already high crude oil prices, he said.

If you look at the technical chart, prices have moved upwardly in the last six months and we expect the bullish trend to continue further in the coming months. Prices may go beyond 175 dollars per barrel and touch 200 dollars per barrel," Mumbai-based Kotak Commodities Services Technical Analyst Dharmesh Bhatia said.

Amid the rising crude oil prices, there seem to be no respite for India and other countries, which are reeling under high inflationary pressure.

"Oil demand is rising higher than the supply. Although it is difficult to predict how much prices would inch up but they may rally in the range of 140-150 dollars per barrel,"Industry body Federation of Indian Chambers of Commerce and Industry (FICCI) expert Anjan Roy said.

"Price rise is driving countries to look at alternative energy and conservation of energy. I think this would keep a check on a rise in additional demand for crude oil," Roy added.

According to experts, crude oil prices would decrease only when the demand falls significantly, which seems unlikely, or there is improvement in supply position. Currently, the global demand is approximately 87 million barrels a day against the supply of 82 million barrels a day.

"The prices will decline only when demand falls, of which there is no clear evidence so far. But when demand starts falling due to degrowth, prices will also decline and this will lead to a downward spiral with low prices and increased supply," Manglik said.

A similar scenario was witnessed in the late nineties when high crude prices punctured fast-growing South East Asian economies and led to a downward spiral, he said. Roy said the prices could be brought down only if the supply gap is addressed.

June 13 - Inflation soars to 8.75% on rising prices

Surging food and fuel prices further pushed up inflation to 8.75 per cent for the week ended May 31 from 8.24 per cent in the previous week, its highest in 7 years. Inflation may go beyond a 13-year high of 9 per cent as a result of the steepest-ever hike in petroleum prices, analysts said. "It (inflation) could cross 9 per cent in the near term owing to the hike in petrol and diesel prices," HDFC Bank chief economist Abheek Barua told reporters recently.

In a bid to curb inflation, the Reserve Bank India on Wednesday hiked the repo rate — the rate at which banks borrow from RBI — by a quarter point, from 7.75 per cent to 8 per cent, giving a clear signal that for it inflation is a bigger priority than growth. It may not tame inflation in a hurry, but will discourage spending over a period of time, as banks pass on their higher cost of funds to borrowers. But all is not over yet.

For, a slim majority of economists now expect the RBI to raise its key lending rate once more in 2008 after this week’ssurprise 25 basis point increase to contain inflation expectations, a media poll has showed. Many also expect the RBI to raise its cash reserve ratio (CRR), the main policy instrument used over the past 18 months, by 25 to 100 basis points in coming months to clamp down on inflation-stoking surplus cash.

The government, under pressure to contain prices ahead of state polls this year and national elections due by next year, has also cut import duties on edible oil, curbed rice exports and forced steel and cement companies to cut prices.