The Real Reason Behind Fall Of Crude Oil

The world economy is going through a rough phase and facing one of the toughest time since the financial crisis of 2008. The IMF in its recent projection for the global economy has trimmed global economic growth for 2016 and the year after that by 0.2 percentage point each. According to their new estimates the world economy is likely to grow by 3.4 per cent in year 2016. Nonetheless, what is important to take from this new report is that they have retained the growth rate of India and it will remain the fastest-growing major economy in the next two fiscals as well, outpacing China.

There are two factors that is causing troublance, first is certainly the slowing economy of the China, which till now has acted the growth engine of the economy. And second closely related to the first one is the fall in the commodity prices and especially crude oil, which is trading below USD 30 per barrel. Last time we saw such prices was way back in 2004. One of the reasons for such a continuous slide in the crude oil prices is definitely the emergence of US as major oil producer in the world. It has increased from 6 millions barrel per day in 2003 to around 10 millions barrel per day today. The key to the increase in U.S. crude production has been the introduction of new technology of fracking, or hydraulic fracturing. This technique extracts oil and natural gas using a high-pressure fluid mixture injected into shale rocks, and has helped lead to a resurgence in US energy production.
Even after this increase in supply of crude oil in US, it requires another 10 million barrels per day to fulfil its requirement. What this means that it is still producing less than what it consumes. Even under this circumstances, the US government has lift the 40-year-old ban on export of the US oil. The ban on exporting U.S. crude was put into place in 1975 in the wake of the Arab Oil Embargo that rocked the US economy. This has come at a time when sanctions have been lifted from Iran and it too will start exporting oil. And all these factors have led to crude oil price dipping to a multi-year low.

According to me, this is not a mere coincidence. I believe that this is a deliberate attempt by the US to keep crude oil prices low. The lower oil prices mean lower revenue to the middle east countries that have remained a breeding ground for terrorism. Higher oil price has always helped them to fund and export their terrorism to the western countries and hence the lower oil price will break their back. Hence, I believe that the crude oil prices will remain subdued for a while now.

Countries like India that are net importer of the crude oil will remain beneficiary of such subdued prices. And this may be one of the reasons why India’s growth story will remain intact. What is also in the favour of India is strong decisive government that is taking all the right steps to improve economy. One of such recent steps taken by government is setting up of Startup India action plan that was earlier announced by PM Modi from the ramparts of the Red Fort.

On January 16, Prime Minster Modi unveiled a 19-point Start -up India Action Plan. This is done with an intention of creating a vibrant entrepreneurship, which will help to absorb more than one billion work force that is entering in the job market.  As per data released by NASSCOM, 80,000 jobs had been created in the country by Start-up's last year alone and the number of investors too, doubled from 220 to 490. Taking a cue from these developments, the Start-up India Action Plan included creation of Rs 10000 crore rupee fund to promote the start-ups in India.
 
Coming to the equity market, our cover story this time discusses in detail about the way market are going behave in next few months and what will be the triggers to look for. Besides in one of our special report we have covered some sell ideas based on the technical analysis. My suggestion to you all is hold on to right stock characterised by better growth, quality management and good dividend track record. 
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