Mumbai, India (PressExposure) February 24, 2009 -- Conference on Global Slowdown and Indian Energy Sector
To be held at March 4 2009, Hotel The Claridges, New Delhi
Oil prices are appearing to reflect state of economies. Rising prices between 2003 and 2007 reflected the best economic growth in the recent times. This high economic growth was brought to an end not only by under-pricing of risk, excess liquidity and over-confidence but also by an increasingly unsustainable commodity boom - of which oil was a crucial part. Now, as the world has dropped into recession, oil prices have fallen by around 80% (as we write) from the high of $147/bbl to touch $33/bbl. And this is despite the recent oil production cut by OPEC! And there is news that over 50 million tonne of crude is stranded in VLCCs in high seas.
The irony is, while shortage of refining capacity was considered as the prime reason for increase of crude prices, now the same refineries are going under due eroding GRMs. For example, the profitability of RIL's new refinery is projected to come under severe pressure. The other elements of energy chain are no better whether it is the collapsed rig markets or delayed construction of new power projects. Rising prices for a long term gestation projects also mean domino effect in terms of delayed decisions by consumers, governments and businesses that have changed the course of demand.
Another matter of concern is that Indian economy is also appearing to be cooling down faster than expected. People may cheer fast declining inflation rate but it is also a dangerous indicator towards declining economic activity. All hydrocarbon products consumption took a nose dive of more than 15% from May 2008 to October 2008. Though, the fall in oil prices and economy in general is a great relief to hard-pressed consumers and the fall in oil prices is a sort of de facto tax cut - a stimulus package that does not have to be approved by the Parliament or paid for out of RBI's efforts.
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