• NOVEMBER 17, 2001

Good start to Samvat 2058

Despite the shortened trading week equity markets rallied handsomely marking a good start to the traditional new year. Confidence of domestic investors was further supported by a shift to equities in the global markets. The Sensex, NASDAQ and Nikkei all rose by more than 3% this week.

A breather to the global economy is the steady decline in oil prices since the September 11 incidents. The initial knee-jerk reaction led to prices climbing to 9 month highs of $31 / barrel. But since then prices have moved in only one direction -- down. Crude oil prices (Brent blend) are trading at $17.5 / barrel, touching two year lows.

Oil prices have now traded below the Organisation of Petroleum exporting Countries (OPEC) preferred price band of $22 - $28 / barrel for more than a month. The cartel had designed a mechanism for regulating oil prices. Should prices trade below $22 / barrel for ten consecutive working days the OPEC would adjust production to bring back prices within the preferred band. However, the cartel could not immediately cut production due to retaliatory action against the terrorist attacks. Also, Saudi Arabia, the largest crude producer in the world and member of the cartel, is a close ally of U.S.

A new twist to oil dynamics is the role played by non-OPEC producers. OPEC has cut 3.5 m barrels/day (mbd) this calendar year. Much of the reduced supply has been compensated with increased production from non-OPEC producers especially, Russia. Consequently, the cartel has lost marketshare. Fear, that another cut would further reduce marketshare and non-OPEC producers capitalising on the cartel's effort to push-up prices has made the OPEC wary of an independent cut in production. Consequently, the OPEC has been bargaining for a joint production cut. The cartel is contemplating curtailing production by 1.5-2 mbd with support from non-OPEC countries to the extent of 500,000 bpd. However, the negotiations have not met with much success leading to weakness in oil markets. Reports that the OPEC may adopt a strategy of choking non-OPEC producers indicates that oil prices could be headed below the $15 / barrel mark.

Weaker oil prices are beneficial for India, especially, considering the re-structuring proposed in the sector. The BSE Sensex has crossed September 11 levels of 3,150. The next resistance is at 3,300 levels.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407