crude oil
These days the price of crude oil is on fire in the global market. In the international market, Brent crude has crossed 107 dollars, while in the domestic futures market (MCX) the prices have also jumped above Rs 9,000. Everyone is scared of this sudden rise in price of petrol and diesel and there may be a shock of inflation again. But, if you are worried seeing this rise, then wait a bit. According to commodity market experts and leading brokerage houses, this crude oil fire is not going to rage for long. This rise is not sustainable and soon the prices may fall to the level of $ 90 per barrel.
Why is crude oil boiling?
The reason behind this entire boom is purely ‘geo-political tension’. In fact, there is a standoff between America and Iran and peace talks are currently derailed. The ‘Strait of Hormuz’ is suffering the biggest brunt of this.
This is the most important sea route for oil supply in the world, which is currently almost blocked. There is a ceasefire-like situation since April, but the movement of ships through this route has come to a standstill. The International Energy Agency (IEA) has described it as the biggest ‘supply shock’ on record so far. Due to the fear of supply stoppage, there was panic buying in the market and a huge jump in crude oil prices by 2.5%.
How is the flame reaching the pocket?
When crude oil becomes expensive in the world market, it directly impacts the economy of all countries. Due to this tension, the supply chain of not only crude but also natural gas and fertilizers has collapsed for nine consecutive weeks. There are reports of shortage of essential commodities like Liquefied Petroleum Gas (LPG). Due to shortage of fuel and rising costs, airlines are having to reduce their flights.
Why will the price of crude oil fall?
The market is always one step ahead of the news. Amidst this huge tension, a report by ‘Axios’ has given a sigh of relief to the market. According to the report, Iran has proposed a new deal to America through Pakistani mediators. This proposal calls for reopening of the disputed sea route.
Even though US President Donald Trump has canceled the visit of his envoys to Pakistan, he is going to discuss resolving this impasse with his top advisors on Monday. The market has realized that as soon as the official news of the opening of this sea route comes, the ‘risk premium’ (increased price due to tension) in crude oil will suddenly vanish.
What do market leaders say?
Global brokerage firm Goldman Sachs believes that despite the decrease in supply in the Middle East, the price of Brent crude will fall to $ 90 and American crude (WTI) to $ 83 per barrel by the fourth quarter of the year. At the same time, the analysis of Kainat Chainwala, AVP-Commodity Research, Kotak Securities, is also quite clear. He says that as long as there is news of tension, crude can go up to $100-105 and MCX can go up to Rs 9400-9900.
But this would be an opportunity to sell bullishly. As soon as the opening of the Strait of Hormuz is confirmed, there will be huge profit booking in the market. WTI crude will fall to 80-85 dollars and in the Indian market (MCX) it will fall in the range of 7500 to 8000 rupees. At present the market is running on sentiments. As soon as the clouds of tension dissipate, the prices of crude oil will come down rapidly. Therefore, there is no need to panic considering this rise as permanent.
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