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Fall In Crude Oil. How Good or Bad Is It for Indian Equities

Rising US Shale production, low oil demand and high inventories have been a triple whammy for crude oil prices which are now trading below USD 45/barrel or some would say has entered the bear territory. Crude oil, also known as black gold made a high of USD 55.24 barrel and now made a low of USD 42.75 barrel, a fall of more than 22 percent in 2017.

It is expected that monthly U.S. oil production could hit a new record before the end of the year. As per International Energy Agency, U.S. will lead a surge in non-OPEC supply next year that will outpace growth in global demand.

But, India has nothing to complain about.

A fall in crude oil prices will help keep macros in check because it is still a major component of our net imports bill while on the other hand, it is good for equities because crude oil is used as a raw material by a lot of companies.

According to economists, a 10 percent reduction in crude oil prices could reduce Consumer Price Index-based inflation by around 20 basis points (bps) and bring about a 30 bps rise in gross domestic product (GDP) growth.

Most analysts expect crude oil prices to remain rangebound with upside capped at around USD 55 barrel and unlikely to fall below USD 40 to conclude that it is in a bear territory.

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