New Delhi, Nov 11: Crude futures are likely to resume their ascent toward 100 dollars as upward momentum is still strong with the critical factor in the direction of the oil prices being the dollar's performance which has been hitting multiple-decade lows against other major currencies.
The general trend seems to be for further weakness in the dollar, prompting a shift in investments from dollar denominated securities to commodities such as crude oil.
Prices were being sustained at high levels with heavy speculative buying by funds as the dollar hit low levels, making dollar denominated crude cheaper for holders of other currencies.
These are ominous signs for the Indian consumers as the government has provided a strong indication that it intends to pass on the increasing crude oil prices to the retail consumers, in the coming week.
Planning Commission Deputy Chairman Montek Singh Ahluwalia had said on Thursday the present high international crude prices were ''unsustainable''.
''The only viable strategy is to pass on the subsidy (oil) burden to the consumers, while providing targeted subsidy to the needy.
And if we do not do it, investments in social sectors will be affected,'' he said.
Oil pirces rose to a record high of 98.62 dollars a barrel on Wednesday but scaled down after US Energy Department's statistical arm reported that oil inventories fell 800,000 barrels during the week ended November 2.
Some analysts think oil prices have far outpaced levels justified by supply and demand. They blame market speculators for pushing crude prices to record levels, and predict that a sharp decline is imminent.
However, US crude supplies are very critical at the moment. With concerns that there is not enough supply going into the US winter heating season which will ulitmately have a bearing on the Indian basket of crude oil.
Crude oil prices surged to record highs in the month of October and crossed the 90 dollar a barrel mark. Oil prices have risen by nearly 35-40 per cent since summer.
Prices are also being pressured by geo-political tensions between Turkey and Iraq and the fear of supply disruptions from the world's third largest producer - Iraq, For the northern hemisphere winter in the fourth quarter, when demand is at its peak, has threatened supply crunch in the North Sea due to bad weather.
Sanctions imposed by the US on Iran also affected prices. Massive drop in US inventory levels, with stocks at their lowest level since 2005, also contributed to the upswing in oil prices.
Bad weather in Mexico, the third largest suppliers of crude oil to the US, adversely affected production and exports from the region causing prices to spiral.
Last month Iran has reduced the use of dollar in the payment of its oil exports to 15 per cent largely owing to growing pressure from the US on its financial system. The vast majority of transactions for oil from Iran are now being carried out in euros. According to the International Energy Agency (IEA), global inventories have declined in the third quarter. The IEA in its monthly report said that stockpiles in 26 industrialised nations fell in the third quarter and that the risk of inventory levels being low in the fourth quarter is supporting prices.
The International Energy Agency has forecasted that India's demand for oil products may rise by 4.6 per cent this year on account of increased sale of vehicles in the expanding economy.
The Cabinet has already cleared the issue of oil bonds worth Rs 23,458 crore to government-owned oil marketing companies in order to partially compensate the companies for selling petroleum products at subsidised rates.
The governemnt said last week that it will release bonds worth Rs 30,000 crore to the oil marketing companies (OMCs) if the fuel prices remain at the current level.
OPEC has estimated that the global oil demand in 2008 will be 87.1 million barrels a day, a 1.3 million barrels or 1.5 per cent increase over 2007, driven largely by economic growth in China and India.
The record rise in crude oil prices has led to an increase in fuel prices in the US with the average price of gas in October being at 3.16 dollar a gallon compared to 2.99 dollar in September and 2.46 dollar in the previous year.
The Indian basket of crude oil is now trading at over 85 dollars per barrel, widening the revenue loss of Indian Oil, Bharat Petroleum and Hindustan Petroleum by nearly Rs 7,000 crore.
Without any increase in prices, the state-run firms are currently incurring Rs 240 crore losses per day on sale of petrol, diesel, LPG (cooking gas) and PDS kerosene.
However, China has increased fuel prices by nearly 10 per cent with the aim of helping the nation's oil refiners cover surging oil costs.
Major oil companies have been reporting a fall in their profits on account of high oil prices and reduced output. Exxon Mobil Corp, the world's biggest oil company reported that profits have dropped the most since the last three years.
Likewise, ConocoPhillips posted a 5.2 decline in net income per cent. London-based BP Plc, the world's third-biggest refiner, has also reported a 29 per cent decline in profits. The profit from processing crude oil into fuels has reportedly declined by almost 73 per cent in the past four months.
The month of October also saw unprecedented central bank and government interventions, the kinds one has not seen since the September 11 attacks on the US. The White House on Wednesday said the present oil prices ''are too high''.
The Reserve Bank of India in its monetary policy review also announced that it would allow oil refining and marketing companies to hedge their foreign exchange exposures to the extent of 50 per cent of their oil inventory volumes.
The measure is expected to make it easier for the oil companies to hedge by using over-the counter exchange traded (OTC) derivatives.
The companies primarily include Indian Oil (IOC), Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL), are currently hedging only their refining margins in a limited way on a one-to-one basis with known counterparties.