The Oil saga is set for its second foray. Any movement in its price has implications over the economies of countries and world. Well right now, we are witnessing a diametrically opposite effect of oil on the streets located opposite on a world map.
Let’s first have a look on the Dalal Street. Even though the Mr. Kirit Parikh report was not implemented in the last meeting of EGoM (Empowered Group of Ministers). The quorum was not there to take any decision on the sensitive issue of oil prices deregulation. The EGoM is again meeting on June 17, Thursday to discuss the oil pricing issue. The street likes this story. In the last session all the state owned oil marketing companies’ counters like OIL, BPCL & HPCL added 3-4% to their prices. This government is best placed with a political mandate as well as economic sense. There is no “LEFT” and the opposition is only symbolic in strength, whereas the current low oil prices near $70-75/barrel would be making economic viability. Less part of the increase would be on the shoulder of the public at least during these times of low oil prices.
Now let’s see the contrarian effect of oil on the “Wall Street”. Generally US welcome every drop of oil which reaches to its coast but due to the blunder by the British Petroleum, it seems that it is losing on every count. From the environmental hazard and its side effects on the fishing and tourism industry, the economic activity is coming to a halt. The US President , Mr. Obama who is losing countless supporters on the approach towards handing the biggest oil spill in US history has asked BP to open an “Escrow Account” (a third party account) so that the damages could be settled. The investors who were looking for a dividend payment by the company are now sitting on a stock with prices to 14 years low and still counting. BP shares plummeted to close at the $ 30.67, a near nine percent correction in the previous session and lost nearly half of the market cap since the incident. This is a script of an all-around disaster with no one spared.
The “SAGA” has just started in US and the Wall Street has already started giving its ratings. The Dalal Street would be more than happy to pay for higher oil prices if on the other hand stock prices of oil companies rockets.
Akash Singh, Technical Analyst [Akash@hbjcapital.com], HBJ Capital Services Pvt Ltd.
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