Oil prices hit highest level since Gulf War

Earlier, oil prices jumped by over $1 a barrel in New York trading to around $37, triggering off panic selling across global bourses. Part of oil’s recent strength was due to tensions over Iraq’s allegations that Kuwait has been stealing its oil, the same claims it made before invading its smaller neighbour in August 1990, sparking the Gulf crisis. “As world prices are not coming down, India will have to increase prices by at least 25-30 per cent. This is more than expected,” said BSE dealer Pawan Dharnidharka, adding, “the new scenario will hit the earnings of major companies. The overall industrial production will severely affected.”

Meanwhile, after a weak start, equities generally staged a smart recovery lifting the Sensex to touch the day’s high of 4390.21 around noon. However, it crashed suddenly after mid-session to the day’s low of 4171.89 before closing at 4264.34 as against yesterday’s close of 4366.41. It showed a fall of 102.07 points or 2.34 per cent. The BSE-100 Index was down by 39.55 points at 2160.55 from previous close of 2200.10.

Investors were heavy sellers following news that crude oil prices had hit highest level since 1990 Gulf war and major world stocks markets had witnessed a meltdown on Monday with the Dow Jones industrial and Nasdaq Composite Index falling by over 118 and 108 points respectively. Stocks, which attempted a recovery in the morning session, went into a tailspin during the latter part of the session reportedly because of heavy unloading by a leading bull in his favourable counters like HFCL, Global Tele, DSQ Software, Zee Telefilms and Satyam Computer.

The last minute Sensex recovery by over 90 points was due to short covering on the National Stock Exchange that had the last session of current account.In the specified group, 112 shares including 25 index based scrips registered sharp to moderate losses while 28 other showed noticeable gains. Sensex has now fallen by over 400 points in the last three trading sessions. “Although domestic institutions led by UTI tried to avert a slide, it is to be seen whether the market will recover in the near future,” market circles said.

The continuing fall in the rupee value also created nervousness. The Indian currency closed at an all-time-low of 46.3650/38 per dollar by registering a massive decline of 39 paise in a single trading session following heavy dollar-demand from corporates and banks at the interbank forex market despite the RBI’s passive intervention today.

The currency started at 46.05/15 per US dollar, came under severe pressure immediately after the opening and quoted at 46.27 per dollar. The rupee, then hovered around this level for nearly 40 minutes following the RBI’s statement. The rupee later nosedived to a new all-time intra-day low of 46.40 per dollar before closing at 46.36/38 per dollar, showing a net decline of 37 paise against the dollar from the previous close of 45.99-46.01 per dollar.

Expressing concern over the massive fall in rupee’s value against the US dollar, a senior RBI official assured the market through a statement that the RBI would continue to meet partially or fully the foreign currency requirement of oil companies. However, barring a few minutes of stability in the rupee-dollar movement after the RBI’s statement, it failed to arrest the continuous slide in the rupee’s value, dealers said. “There is no supply of the US currency to meet the huge demand in the market, resulting into a severe pressure on domestic currency,” said a forex dealer at E-Mecklai.

The rupee has so far lost by over 55 paise against US dollar during the last two consecutive trading sessions. “The fall is due to the imminent increase in crude oil prices in line with the international prices,” said a banker. The Indian currency has fallen by 6.7 per cent during the current year.