Crude Prices on the Rise Again - Chart Of The Day 6 December 2016 - Equitymaster

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Crude Prices on the Rise Again
Dec 6, 2016

Watch out! Crude oil prices have started to rise again. Brent crude was trading close to US$ 40 per barrel in August. It's now up to almost US$ 55 per barrel. That's a gain of about 35% in just five months. The recent OPEC meeting set the cat amongst the pigeons. The cartel decided to reduce production by 1.2 million barrels per day starting January 2017. But it seems that the markets were anticipating the decision.

This is bad news for the Indian economy. Ever since June 2014, the Modi government has received a huge tailwind from falling crude prices. It captured most of the gain by raising excise duties on petroleum products multiple times. This helped the government keep the fiscal deficit in check. The petroleum subsidy fell from Rs 968.8 billion in 2012-2013 to Rs 300 billion in 2015-2016. But the common man did not get lower petrol and diesel prices.

Now the trend could be reversing. Crude oil prices are rising again. What happens now? Will the government cut excise duties? We don't think so. We think prices at petrol pumps could rise. This will have a pass through effect on inflation. When consumer spending normalises post demonetisation, we should all be on our guard for rising inflation.

Data Source:Yahoo Finance

This Chart Of The Day was published in The 5 Minute WrapUp - Demonetisation: The Inside Scoop (Part 2)

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