Crude oil prices likely to stay above USD 100 in the near term - Acuité Ratings

Mr. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, comments on gold and crude oil prices.

"As the global economy witnesses a drop in headwinds from the Covid pandemic, new geo political risks emerge from the Russia-Ukraine conflict and if turns out to be a prolonged affair, crude oil prices are likely to stay above USD 100 over the near term. Clearly, this will have an impact on the domestic inflationary scenario where there are already significant undercurrents due to increasing pass through of higher commodity prices with improving demand in manufactured products and even services. While the Government can partly alleviate the pressures through a further cut in excise duties of retail fuels, input costs are set to increase further for sectors such as paints, chemicals, plastic products, transport and aviation in the near term. While we have forecast the headline inflation at 5.0% for FY23, there are significant upside risks if crude continues to remain above USD 100 for 1-2 quarters. Apart from a potential impact on monetary policy and interest rates, it is also likely to have an adverse impact on the rupee through higher trade deficit and higher capital outflows.

International gold prices have remained mostly above USD 1750 for most of the months in the last one year but despite that gold imports by India have remained high. Gold imports have actually risen sharply to USD 40.5 bn in the Apr-Jan of FY22 which is the highest ever for the country in the past comparable periods. With pent up demand picking up due to higher weddings and unlocking of the economy along with the typical investment demand for gold during a crisis period, we believe that gold consumption will continue to remain robust in India. Many investors may move a part of their financial savings into gold since there is a risk of an underperformance of the equity markets in such a tense geo political scenario."