Dalal Street

Crude prices tumbled US$20/bbl in November 2008 led by concerns of a deep and lasting global recession resulting in weakening global demand and strengthening of the US Dollar. The following chart shows 14 year historical Crude Oil prices in USD / barrel.
Refining margins have declined sharply and plunged into negative territory in November 2008 led by demand weakness and sharp contraction in product (naphtha and gasoline) cracks. We could see a short-term rebound from current very low levels but expect refining margins to remain under pressure.

For December 2008, the marketing margin for gasoline at Rs10.9/liter (versus Rs1.3/liter in November and -Rs6.6/liter YTD), the marketing margin for diesel at Rs4.6/liter (versus -Rs0.1/liter in November and -Rs11.8/liter YTD). Subsidy losses on LPG and kerosene were at Rs72/cylinder and Rs16.3/liter for December 2008 compared to Rs217/cylinder and s20.9/liter in November 2008. Since current retail prices result in very high marketing margins, expect the Government to cut prices of diesel and gasoline over the next few days.

For the week ending 22 Nov ’08, headline (wholesale price index, WPI) inflation fell to 8.40% from 8.84% last week.

Contrary to softening of WPI, CPI continued the ascent for the third successive month in Oct’08 and crossed 10% mark first time in almost ten years. Primary food articles grew 10.48% y-o-y. Food grains, cereals, pulses, vegetable, egg, meat and fish are the main drivers of this rise.

Fuel index continues to fall on the back of non-administered fuel components. Manufactured products mostly edible oil, rubber and plastic products and basic metals have witnessed a continuous fall in the recent weeks.

Inflation falling will provide more comfort to RBI to ease the monetary policy and we expect further repo, reverse-repo and CRR cuts.