Crude oil prices likely to hit $60 by year end

​Hyderabad: In a significant development that could impact Indian economy, global oil prices rose above the $50-mark per barrel for the first time in around seven months in the intraday trading on Thursday, before easing to near $49 on Friday. Global economists and analysts predict that prices will inch up to $60 by the year-end.

India, currently the world’s fastest-growing energy market, largely depends on imported crude oil. The low oil prices, which hit a historic low of $27 a barrel in January this year from $115 in mid-2014, came as a boon for the country with the oil import bill.

The bill halves the cost to $65 billion in FY16 from $112.7 billion in the previous fiscal. However, oil prices climbed by a whopping 85 per cent since January and reached $50 per barrel, heightening worries in the country about the adverse impact of rising oil prices.

“As oil touches $50 India’s honeymoon on inflation, current account deficit (CAD) may be over," Uday Kotak, founder, Kotak Mahindra Bank, wrote on Twitter recently. That puts the onus on policy makers to help drive growth instead of depending on the external environment, he added.

Short-term disruptions to oil supplies have lifted the prices, off-setting higher production from Iran and Saudi Arabia, while disruption of key oil production facilities in Canada and attacks by militant groups continue to restrict oil pipelines in Nigeria. Demand has also been better-than-expected from major economies including India, China and Russia, driving the prices up.

“We do now appear to be seeing the effects that the decline in the US output is having, and while supplies remain elevated, the glut does not appear to be diminishing,” said Michael Hewson, Chief Market Analyst, at CMC Markets. Chief global economist at Capital Economics, Julian Jessop, expects the prices to remain between $50 and $60 which would be moderate enough for the industries that depend most heavily on oil to handle.

“Prices in the $50-to-$60 range would be high enough to ease some of the pressure on producers, while still low enough to boost spending on other goods and services,” Jessop said in a statement. However, another senior analyst predicts that the oil prices could stay in the $40-$50 range in the next few months. Acocrding to Giovanni Staunovo, analyst at UBS, oil markets are rebalancing faster than expected and should see no global stock build in 2017 for the first time in at least four years.