Untold Secrets of Oil Price Fall – Will if bring 2008 kind of Correction in World Economy?
December
15, 2014
Untold Secrets of Oil Price Fall – Will if bring 2008 kind of
Correction in World Economy?
Greetings
from Hitesh! Today I am going to deal with the hot issue of the Energy Analysts
world over from my view point. After reading it, I am sure it will make some
difference in the way you look at the world economic events.
Advantage India
No
doubt, it’s a boon to India and countries depending on imported oil. But it’s
not so when you look the picture in totality. Let us see some of the arguments
put forward by energy analysts.
1. When USA and Europe was not doing well, only OPEC was doing
well due to consistent oil production and consistently high crude market price.
2. OPEC countries used to deposit / invest their money –
popularly known as PETRODOLLARS in western world or through western financial
system!!
3. For the first time in 18 years – they started withdrawing
capital from their investments!! According to one estimate – they invested
USD248 billion in 2012 / USD60 billion in 2013 but they will take out USD 7.6
billion from the western world.
4. Other Oil producing companies in the world will also suffer
due to this – just see the share prices of Reliance Ind and other oil producing
companies in India!!
5. The other major risk is sell off of Energy Companies Bonds –
which are junk from the beginning or turning junk due to change in the market situations.
How Do We See The Situation?
On June
20, 2014
At
that time we had given a bold theme – read this and you will be ahead of the
pack by 10 years!! Just see how we are being proven correct? Let me deal with
the issue in details.
This
time also we are looking at the ground realities to find out the root cause of
the problem and not the superficial analysis as done by normal analysts.
According
to us – this is a beginning of economic war by USA against Russia. Let us understand
Russia first:-
Russia is unusual among the major
economies in the way it relies on energy revenues to drive growth. The country
has an abundance of natural resources, including oil, natural gas and precious
metals, which make up a major share of Russia's exports. As of 2012 oil and gas sector accounted for 16% of the GDP, 52%
of federal budget revenues and over 70% of total exports. Between 2000 and
2012, Russia's energy exports fuelled a rapid growth in living standards, with
real disposable income rising by 160%
Like OPEC – major revenue in Russia comes
from OIL – 70% of exports and other is war material.
Recently it attacked Ukrain and threatened
the Energy supply to European Countries. It refuted all requests to go back and
negotiate. So, from August end onward – USA came in the arena.
It followed a simple strategy – bring down
the oil prices – just see Russian Rouble is down by 38% against US Dollar in
last 3 months!!
Here the goal is to bring down Russia
under USA and Oil prices are manipulated for the same!! This is the only fact –
all else is story!! So, do not get carried away by this.
What Does This Mean
For Indian Market?
At the economy level – Inflation has started
coming down and it will give Mr.Modi and Mr.Rajan a breathing time to put the
house in order. We see Mr.Modi taking a bold policy initiative to spur the
growth and Mr.Rajan cutting the rates to support the same.
We also see that Budget 2015 is going to
be a people friendly budget. He will make it a point to introduce progressive
policies and make sure that they are implemented.
If you have paid attention to Mr.Rajan –
he is also watching the inflation – he wants to be sure that inflation remains
down before he pumps money into the Indian Economy.
So, we are positive for India. Use this
fall to buy. If you are purely short term investor - you can make good money in
the rally to budget.
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Wish
you a Happy Week Ahead
Hitesh
Parikh.
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