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Oil's boil, sustainable growth & more - Views on News from Equitymaster
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  • Jun 16, 2008

    Oil's boil, sustainable growth & more

    Saudis' nervous on oil spike
    In what would bring some sort of respite for oil consumers, Saudi Arabia, the world's biggest oil exporter and the OPEC's most powerful member, is planning to increase its output by about 500,000 barrels a day next month onwards. This will be a rise of nearly 6%, and is expected to bring Saudi output to a production level of 10 million barrels per day (mbpd), its highest ever. As reported by the International Herald Tribune, the Saudis have already increased its oil output by 300,000 bpd over last month's production, 'a sign that the Saudis are becoming increasingly nervous about both the political and economic effect of high oil prices'.

  • Also read - Oil's continuous boil

    As a matter of fact, crude oil prices have gained 40% since January this year, with a barrel's (159 litres or 42 gallons) cost increasing from US$ 96 to US$ 135 currently. This has led to widespread protests in regions ranging from South Asia to Eastern Europe to South America. The spectre of inflation induced by such a rise in fuel prices has also had an impact on the 'borrow-to-spend' kinds - the American consumers - who have been gradually cutting back on their consumption, including reducing their driving binge. For the record, gasoline (petrol) prices in the US have risen above US$4 a gallon, from US$ 3 at the start of this year. Signs of nervousness all around!

    In the meanwhile, prospects of increase in production by the Saudis led to oil prices falling last Friday, with a barrel's cost declining by almost US$ 2 to settle just under US$ 135 on the New York Mercantile Exchange.

    In India, the argument continues...
    From accusations of corporate spying to rigging prices of a mega IPO (initial public offering), the Ambani brothers (Mukesh and Anil Ambani) are at it again. This time, the bone of contention is the latter's proposed deal to form a mega telecom venture for his company, Reliance Communications (RCOM) with the South African major, MTN.

    As reported in frontline business media, Reliance Industries Ltd. (RIL), which is India's most valuable company and is controlled by elder brother Mukesh, has objected to the talks between RCOM and MTNL, saying it is entitled to the right of first refusal on purchasing a controlling stake in the phone company. As reported on the Bloomberg, this latest move from RIL may seem as an extension of the ongoing dispute over gas prices between the two brothers. Now, that's competition of a different kind!

    Some good news at last for India Inc.
    Facing the threat of rising commodity (metals, fuel) prices on one hand and higher employee costs on the other, India's manufacturing and infrastructure sectors should finally have something to cheer for. As reported in a leading business daily, the country's steel production is expected to surpass domestic requirement by 2011-12, thereby easing pressure on prices of the alloy, which has been adding to the spiraling inflation. As reported by the steel minister, the country shall 'achieve 124 million tons (MT) of steel capacity by 2011-12 (52 MT currently), well exceeding the requirement of 110 MT at that point of time'. As a matter of fact, steel prices have shot up by over 50% over the past six months, adding to the woes of the UPA government, who in its last year at the helm is battling a seven-year high inflation of 8.75%.

  • Also read - Steel's supply outlook

    Against an annual increase of 6% in production over the past few years, the annual demand for steel in India has been rising by about 13%, which has led to spiraling metal prices, thereby inflicting profitability pressure on industries like power and capital goods, manufacturing and infrastructure, which are the biggest consumers of steel in the country.

    Mantra for sustainable growth
    Slowdown or no slowdown, record spending on infrastructure will continue in emerging economies, reports The Economist, with a special mention of the BRIC economies (Brazil, Russia, India and China). This will help the countries sustain rapid growth. As reported, emerging economies are likely to spend an estimated US$ 1.2 trillion on roads, railways, electricity, telecommunications and other projects in 2008.

  • Also read - Opportunities in infrastructure

    This will be equivalent to 6% of their combined GDPs and twice the average infrastructure-investment ratio in developed economies. With respect to India, the report talks about the government's eleventh five-year plan (2007-2012) of spending nearly US$ 500 bn in infrastructure projects. Whether this is achievable is highly questionable, given the government's deficit and lack of will that has impaired the country's all round development for so many years in the past. As a matter of fact, the World Bank estimates that a 1% increase in a country's infrastructure stock is associated with a 1% increase in the level of GDP. This can be true for India as well, but only if...



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