Brent crude oil prices crossed the $65 per barrel mark for the first time in three months on Friday putting pressure on rupee which closed at 71.23 against the USD, down 0.1 per cent and the premier benchmark indices at BSE and National Stock Exchange falling by 0.2 per cent on Friday.
With Venezuela crisis & OPEC cuts, oil prices to rise further
With the OPEC deciding to cut oil production alongside the ongoing issues in Venezuela and Saudi Arabia’s likely cut in production, the chances of rise in crude oil prices have only gone up. While crude oil prices have hit a three month high of , a likely rise in prices to higher levels may only make the rupee volatile and weaken it against the dollar raising concerns for exporters and importers.
While a decline in Brent crude oil prices to levels of around $50 per barrel by the end of December 2018 had offered a big relief to rupee and the domestic currency strengthened to trade between 69 and 70 against the USD towards the December end and first week of January, a sharp rise in crude oil prices over the last one month has pushed the rupee back to levels of 71 against the dollar.
On Friday, the rupee fell for the third consecutive day and slipped to levels of 71.44 before closing at 71.23 against the dollar. It closed at 70.53 on Tuesday. Over the last three trading sessions rupee has lost 70 paise or 1 per cent against the dollar. In fact over the last four days Brent crude oil prices have risen almost 6 per cent from a level of $61.5 per barrel to over $65 per barrel on Friday.
According to the provisional data available at BSE, foreign portfolio investors (FPIs) turned net sellers and sold equities worth Rs 966 crore on Friday, from the Indian markets. On Thursday the net sale by FPIs from equities and debt markets amounted to Rs 1,193 crore. “India’s rupee and sovereign bonds declined owing to continuous rise in crude prices and sustainable foreign outflow,” said V K Sharma, head PCG and capital markets strategy at HDFC Securities. Sharma further said the rising dollar index also weighed on the local unit. The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.11 per cent to 97.08.
Experts feel that the concerns in the markets are growing on account of the rise in the crude oil prices. While tensions in Venezuela, which accounts for almost 6 per cent of India’s crude oil import, is having an impact, a cut in production by the Organization of Petroleum Exporting Countries (OPEC) is set to keep the crude oil prices higher.
Some relief, however, may come on account of global growth concerns, US inventory report and progress around trade talks between US and China.
Mustafa Nadeem, CEO, Epic Research said, “We may be looking crucially at the movement of Crude oil, USD INR and how global markets are behaving.” Abhishek Bansal, chairman, ABans Group said that Brent oil has crossed critical resistance around $63.74 per barrel and immediate upside is seen till $66.87 and $68.60 per barrel, while key support remains at $62.20 and $60.80.”Saudi Arabia is likely to reduce oil production to nearly 9.8 million barrels per day in March, well below its production quota under a deal to cap output. OPEC had reduced oil production by almost 800,000 bpd in January to 30.81 million bpd under its voluntary global supply pact,” said Bansal. In the meantime, US crude oil inventories rose by 3.6 million barrels.