$61 Price of Brent crude.
- The price of Brent crude recently crossed $61 a barrel for the first time in 13 months. It has risen 60 per cent since November 2020.
- Experts say a steep rise in crude oil and commodity prices could prove to be a headwind for corporate earnings and the markets.
- The spike in crude price indicates the global economy is recovering, and with it, the demand for crude is on the upswing. Another factor that has led to the upsurge is that major oil producers such as Saudi Arabia have cut output to boost prices.
- Rising crude price could hamper the Indian economy's recovery. Every $10 per barrel increase in price raises India's energy import bill by $16 billion.
- This results in a higher current account deficit. It also leads to higher inflation, which means consumers have less disposable income to spend on other goods.
- Rising crude prices could impact the equity markets as well.
- One step the government could perhaps take to ease the pain of consumers is to rationalise the high excise duty on fuel.
- But if the government cuts excise duty, and oil prices keep surging, its fiscal calculations could go awry. It could then be forced to borrow more from the markets.
- This would put upward pressure on interest rates. And higher interest rates, as we know, have a negative impact on equity market performance.
A few links for further reading
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