A Puzzling Trend
Despite the significant rise in prices of other assets and commodities, crude oil prices in rupee terms have remained relatively stagnant over the past six years. This anomaly raises questions about the factors driving the oil market and the potential for future price movements.
The Impact of Monetary Expansion
The global expansion of monetary bases has led to increased inflation and rising prices for many assets. However, crude oil has not followed this trend. This suggests that there are specific factors influencing the oil market that are counteracting the broader inflationary pressures.
A Digesting Market
It’s possible that the oil market is still digesting the significant price increase that occurred during the COVID-19 pandemic. The price of crude oil surged from around ₹6,000 to ₹10,000, and it may take some time for the market to fully adjust to this new price level.
The Potential for a Breakout
Once the market has digested the previous price increase, it’s possible that crude oil prices will experience a significant breakout. This could be driven by factors such as geopolitical tensions, increased demand, or supply constraints.
A Looming Threat
A sharp increase in crude oil prices could have negative consequences for the Indian economy. India is a major importer of oil, and higher prices would increase the country’s import bill. This could lead to inflation and put pressure on the current account deficit.
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