New Delhi: Oil prices have risen nearly 16 percent so far this year to near $90 a barrel, as rising tensions in the Middle East between Iran and Israel and continued attacks on energy infrastructure between Ukraine and Russia heightened supply concerns. Are. , Crude oil prices rose after a cooling session as the Organization of the Petroleum Exporting Countries (OPEC) and its allies kept supply policy unchanged until the second half of 2024.
The International Monetary Fund (IMF) has described an “adverse scenario” in which escalating conflict in the Middle East would lead to a 15 percent increase in oil prices and an increase in shipping costs that would increase global inflation by about 0.7 percentage points. Global brokerages like Morgan Stanley have raised their third quarter Brent crude oil forecast by $4 per barrel to $94.
Oil was last above $100 in 2022. It briefly rose to around $139, its highest since 2008, after Russia invaded Ukraine. Oil supply shortages and higher prices have been supported by oil cartel OPEC and other big oil producers curbing their output. , With oil prices expected to remain high, here’s how the latest surge will affect world markets:
What impact will the increase in oil prices have on world markets?
Inflation: The softening of energy prices has been a key driver of low inflation expectations recently. Higher oil prices are seen as a threat to this trend. The latest US inflation print has dampened expectations of an early rate cut by the US Federal Reserve. Talking about Europe, the inflation target of the European Central Bank (ECB) is two percent.
ECB chief Christine Lagarde said fresh unrest in the Middle East had so far had little impact on commodity prices. Oil, although close to recent highs, has softened a bit this week. Still, the ECB has said it is “very attentive” to the impact of oil, which could hurt economic growth and increase inflation.
Guy Miller, chief market strategist at Zurich Insurance Group, said that when oil is around $75-95 a barrel, economies can survive and producers are quite happy. “But if we see it going higher, then yes, it will be a matter of concern from both a growth and inflation perspective,” he said.
Strong Dollar: 2024 began with expectations that the dollar will decline as inflation weakens and allows the Federal Reserve to begin cutting rates. Instead, the greenback has gained 4.7 percent this year as rate-cut bets eased.
Higher oil prices could strengthen the dollar. Bank of America said that although the dollar remained negative in the medium term, higher oil prices meant there was “risk to the upside” for the US currency. That puts pressure on economies like Japan that are struggling with currency weakness, leaving traders wary of possible intervention to support the yen, which is struggling at a 34-year low.
Pressure on EMs: Prolonged higher oil prices will also hit several emerging market (EM) economies like India and Turkey, which are net oil importers. This week, India’s rupee reached a record low against the US dollar. Since oil is priced in dollars, many importers also face higher prices due to currency fluctuations.
What impact will the increase in oil prices have on India?
India – a net importer of crude that meets 85 per cent of its energy needs through imports, is likely to see a huge import bill if global crude prices continue to rise throughout the year. The country’s crude oil imports are set to fall by 16 per cent in fiscal 2024 due to falling international rates, but dependence on foreign suppliers has reached a new high, official data shows.
India imported 232.5 million tonnes of crude oil, which is refined into fuels like petrol and diesel, in the 2023-24 financial year (April 2023 to March 2024), almost the same as the previous fiscal year. But data from the oil ministry’s Petroleum Planning and Analysis Cell (PPAC) shows it paid $132.4 billion for imports in fiscal 2024, while paying an import bill of $157.5 billion in 2022-23.
The country, the world’s third-largest oil importer and consumer, has been able to reduce its domestic production, increasing its import dependence. According to PPAC, import dependence of crude oil increased from 87.4 percent to 87.7 percent in 2023-24.
However, economists say that even amid high international crude prices, India should be able to keep the crude oil import bill under control in the near term, due to good supplies from Russian crude imports.
Hardik Shah, Director, CareAge Ratings said, “There was an upward trend in crude oil prices from the beginning of calendar year 2024. Despite the fall in crude oil prices in the last one week, we expect an increase in crude oil prices. ” near term. ,
