Viewpoint: Crude Tanks Further as Saudi Arabia Cuts Prices :: HDFC Securities

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India can rejoice. Crude prices have broken the $80 barrier. And this has come at a time when Saudi Arabia announced a price cut for the U.S.

Falling crude is the biggest fundamental development that is helping India .The timing of the price cut assumes a lot of importance as it has come  ahead of OPEC?s bi-annual conference on 27thNovember.
This clearly takes away any consequential fears OPEC?s meeting may hold for the markets.

The fall in crude oil prices will have a positive impact on

?    Paints
?    Tyres
?    Other downstream petroleum products
?    Cost of imported crude
?    Gas prices
?    Profitability of Oil marketing companies
?    Our trade deficit
?    Our fiscal deficit
?    Inflation
?    It will embolden the RBI to cut rates
 
Why Oil  prices will stay low

Crude Prices have tanked globally in the past few months. The prices of Brent crude have slipped by more than 28% to $82.69 a barrel from $115 a barrel yesterday. Prices of  West Texas Intermediate oil too slumped 2.03%  yesterday to $77.18 a barrel. On the surface, it might seem confusing as to why prices are tumbling. Are they due to a stronger dollar? Is it s weak demand or a higher production? 

The following factors have triggered the fall in prices:

?    Increase in U.S. production
?    Increase in OPEC production ( OPEC production is at a 2 year high)
?    Subdued growth in China
?    The unwillingness of the OPEC to cut capacity

Libyan Oil production has increased to 9,00,000 bpd from 2,00,000 bpd.  Saudi Arabia, Nigeria and Iraq have increased production.
The crux is demand has increased to 0.7 million barrels a day. Production increase has doubled to 1.4 million barrels a day. Riyadh?s action yesterday has meant that Saudi may reduce the price but not the volumes.

For the U.S. to consider a reduction in oil production, prices will have to remain below $ 70 a barrel.  The scenario looks great for India.
 
Biocon expands partnership with US-based CytoSorbents

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Biocon will now have the exclusive, region-wide rights to distribute CytoSorb for critical care applications in the intensive care unit (ICU) and cardiac surgery applications for India and select emerging countries.

Ceat Tyres to set up Rs 1,200 crore plant in Butibori

In a bid to bring big ticket industrial investment in the city, chief minister Devendra Fadnavis has wooed Ceat Tyres for setting up a unit at the Maharashtra Industries Development Corporation's (MIDC) Butibori estate.

The RPG group company submitted its official proposal to MIDC on Monday to which the chief minister responded by handing over a letter of intent (LoI) to the tyre maker. Ceat plans to come up with a unit entailing an initial investment of Rs 400 crore and create 1,200 jobs. It will eventually have an investment Rs 1,200 crore and 2,850 direct jobs. This will get it a mega project status that makes it eligible for tax sops from the state government. The company has been offered 50 acres of land. It can choose from the existing industrial estate or additional area coming up in close vicinity.

Thomas Cook arm to buy stake in MFXchange

Thomas Cook India said on Tuesday that its arm IKYA had entered into a definitive agreement with Fairfax Financial Holdings to acquire 49 per cent stake in MFXchange Holdings, a wholly-owned subsidiary of Fairfax. The integration of MFX with IKYA will result in the formation of the Global Technology Services Group (GTS Group), marking IKYAs entry into the IT services and solutions space in the North American market, Thomas Cook said.
 
China Oct HSBC services PMI falls to 52.9 from 53.5 in Sept, 3-month low

Growth in China's services sector weakened to its lowest in three months in October as new business cooled, a private survey showed on Wednesday. This reinforces signs of a slowdown in the economy that could prompt policymakers to announce more stimulus measures.

The services purchasing managers' index (PMI) compiled by HSBC/Markit pulled back to 52.9 in October - the lowest since July - from 53.5 in September. This data, which came in this morning,  has adversely impacted the Asian markets.
 
U.S. Markets Close Mixed on Oil and Global Growth Concerns

Key U.S. Indices closed mixed on Tuesday on worries about bidding oil companies and the rising concerns about the global growth.

The S&P 500 fell 6 points or 0.29% to 2012. The Nasdaq Composite shed 15 points or 0.32% to 4,624. The two indices had broken their two day winning streak.

However, the Dow Jones Industrial Average, which oscillated with minor gains and losses, managed to gain 18 points at close at 17,384. The Dow was helped by the transport components. The blue-chip index completed a hattrick of gains.

The price of oil dropped to levels not seen in three years after Saudi Arabia cut oil prices for the U.S. by 45 cents from a month earlier. This is Saudi Arabia?s attempt to  remain competitive amid booming oil production in the U.S.

Prices for West Texas Intermediate oil slumped 2.03% to $77.18 a barrel and Brent crude slid 2.47% to $82.69 a barrel.  Strategists said the move will pave the way for further falls in oil prices, and possibly pressure American energy producers.

Energy companies were pounded for the second straight day, with the sector making up half of all the losses on the S&P 500. Oil  heavyweights Exxon Mobil and Chevron fell 0.79% and 1.3%, respectively, and the Energy Select Sector SPDR exchange-traded fund tumbled 2.1%.

Adding to global growth concerns, the European Commission tempered its expectations for the eurozone through 2016 on continued deflation concerns and unemployment woes. The body cut its forecast for growth next year to 0.8% from 1.2% with significantly lowered estimates for the region's two largest economies, Germany and France.

This comes ahead of the ECB meeting Thursday. This puts pressure on the ECB for a stimulus.
Europe stocks erased gains after news of the cut in eurozone growth forecasts.
In U.S. economic news, the nation?s trade deficit jumped in September to the highest level since the late spring. The surprising spike in the trade deficit is likely to reduce third-quarter growth when the government revises the report later this month.
St. Louis Fed President James Bullard on Tuesday said that the U.S. economy is on track to grow at a 3% annual rate over the next 14 months, which should allow the Federal Reserve to move ahead with plans to hike short-term interest rates.

Priceline shares were the worst performers of the S&P, down nearly 9% after offering fourth-quarter guidance came in lower than investor expectations.

Herbalife tanked more than 20% after being downgraded to "neutral" with a lowered price target at brokerage following disappointing third-quarter earnings. Alibaba, the Chinese e-commerce giant,  moved higher by 3.6% after it posted revenue growth of  53.9% higher year over year, to $2.74 billion.

Office Depot was another rare gainer on Tuesday, adding more than 23% after quarterly net income of 10 cents a share exceeded estimates by a penny. Among other news, U.S. citizens headed to the polls on Tuesday for mid-term elections, the results of which could set the stage for the 2016 presidential elections. The results will also determine whether Republicans can take hold of the Senate.

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