MUMBAI: The biggest spike in global crude oil prices since the 1991 Gulf War sent global equities and currencies crashing on Monday. The development is a double whammy for India due to the country’s high dependence on imported crude.
The attack on Saudi Arabia’s oil facility, which has taken nearly 5 per cent of global production offline, can have serious repercussions for a world already battling trade wars and a slowing economy.
Benchmark index BSE Sensex, after falling by 356 points, bounced back to close at 37,123.31 points, down 261.68 points. Nifty was down by a similar percentage. The Indian Rupee opened weaker at 71.54 to the US dollar, falling further to 71.69 before closing at 71.60, down 68 paise over the previous close.
“High reliance on imported crude to meet 83 per cent of its domestic oil demand leaves India vulnerable to movements in global oil prices,” DBS Group Research said. It estimates every 10 per cent rise in crude prices widens India’s current account deficit by 0.4 to 0.5 per cent of GDP.
Public sector oil refining and marketing companies and aviation stocks lost the most as an immediate reaction to rising crude prices. Analysts also worried about a comeback of subsidy burden on upstream companies ONGC and Oil India, which would otherwise benefit from higher crude prices. Oil India and ONGC closed with flat to marginal gains.
Among the refiners, BPCL fell the most, down 7 per cent at Rs 380. HPCL closed down 5.7 per cent at Rs 255.55 and while IOC fell the least, shedding just a percentage point. “The refining environment could turn challenging if product prices do not track crude price changes,” said Jefferies.
“Going forward, investors would keep a close watch on geo-political developments..,” said Ajit Mishra VP, Research, Religare Broking.