IRANIAN OIL: BLESSING IN DISGUISE

Even though the oil supply has not started from Iran, prices have already started tumbling. Analysts have started predicting $10 as expected price in the near future. Some being more optimistic expect the future price of oil to be $ 40 this year. The second price tag sounds good for the world economy. But is it achievable with Iran worsening the oil gut. For the last two years, supply has been outstripping demand due to erratic weather conditions and weak economy all over the world. Countries with falling currencies, high deficits, and declining exports are intimidated by Iranian oil which may lead to further decline in oil prices. Two years ago, nobody would have expected oil to fall below $30. So is it possible to make future predictions on the basis of uncertain presumptions.

Oil exports from Iran are expected to delay the recovery in oil prices no more dictated by OPEC. But, it is highly possible that re-entry of Iran may fulfill OPEC’s agenda of driving shale producers out of business. If prices fall below $25, it will become ugly for oil producers especially the non OPEC members. This might lead to new consensus among the whole oil community leading to a new stable oil regime. As for India, falling oil prices would reduce the cost of our imports and also foreign inflows especially in our stock market. Exports have fallen by 14.75% YOY in December 2015 and trade deficit has widened to $11.66 bn compared to $9.8 bn in the previous month of November. Thus declining oil prices have become a re-balancing factor in our trade deficit but the Sensex will go up when the oil moves northwards. For informed investors, its best time to buy long term quality stocks at attractive valuations as only FUNDAMENTALS CREATE WEALTH.