Oil may go up to $84 on US hurricane worries

AHMEDABAD: Look who’s playing on the mind of the Indian investor these days. Katrina, Rita, Wilma and Emily have stormed back into his life. If the Gulf of Mexico is struck by similar hurricanes this year, like it did in July ’05, oil and gas prices could soar putting the global economy into a spin.

A year later, the memories of the hurricanes have begun to haunt crude oil prices globally. Crude oil futures have been rising, and closed higher at $73.93 a barrel on Friday on the Nymex after crossing the $74 mark. If oil prices are raised in India again soon, it could hurt sentiments across the board.

Biren Vakil, head of Paradigm Commodities warns of the fallouts. “Potential damage from hurricanes leading to disruption in oil supplies would add add further pressure on oil prices which are already rankled by huge demand from China, India and Japan and the tensions with Iran, one of the largest oil suppliers,” he said.

“There is a tightening of money supply globally and this could have a severe impact on crude oil prices. If the oil price were to cross the $75-mark then technically it has the potential to go up to $84,” says G Srivatsava, president of commodities research firm Foretell Business Solutions. If current high prices continue then some fall in consumption could happen in ’07.

Brics Securities Pramit Mistry told ET that crude has been forming higher and higher bottoms over the last few years. “From $35 it went up to $45 and recently it seems to have formed a new base at $65, below which the price does not fall,” he said. While it is too early to say what damage the hurricanes in the US could cause this year, it was quite severe during the previous two years.

The US Federal Reserve’s indication that it may take a pause in hiking interest rates further had let to a spurt in equity, bullion and metals markets on Friday. Globally gold futures price jumped from $589 on Thursday to a new three weeks high of $616 on Friday. On the Multi-Commodity Exchange (MCX) gold futures price surged to Rs 9,277 on Saturday from Rs 8,863 on Thursday.

“The US Federal Reserve has indicated a major shift in its monetary policy. It is now going to consider economic data as well before deciding on a rate hike rather than just looking at the inflation rate as in the past,” said Biren Vakil.