Right from the past 7-8 months, from Jan 2007 to be precise, the world is experiencing recession or slow down. This is mostly because of the credit crunch in US. At first, India or rather Asian countries were looking isolated from the crunch, but along the time, they also felt the heat and crunched down.
But in this whole scenario, Oil prices were more hitting to Indian economy than anything else. As India is mostly banking on Oil Import for its energy needs, the variation in oil prices hit economy like anything. It jeopardises the whole condition. Thankfully, the condition was not that bad and India is recovering from the oil shock. Oil prices are receding slowly towards $100 mark from $147, the highest ever.
The question remains here is what is the guarantee that oil prices are going to come down. There are two things, either it will go up again or it will come down.
Recently I read an article by Manas Chakravarty in Mint 08 Sept. 2008. He said as the world faced with recession in early 1990’s and in around 2001, oil prices came down by around 40%. And if now the prices come down by 44% again, then the level of oil prices will be around $80-90 per barrel. For this theory he got the support of current recession. And he further says, if the recession stays for even longer time, then oil prices will further recede.
But on the very next day, i.e. on 9 Sept. 2008, there was a news which said that countries like Venezuela, Libya and Iran are thinking over reducing the oil production henceforth. And Venezuela, Libya and Iran are doing this reduction in price so that oil prices don’t fall below $100. And though OPEC Countries like Saudi Arabia are mute about this decision, they might be silently supporting the decision and will eventually end up in cutting down the production level “silently”. And if this happens, then the oil prices will not come down below $100 mark.
So finally, the question remains unanswered. In the coming future, where we can see oil prices going? Up or Down? And is this scenario pointing towards something else? Has the time come for the World to think over other source of energy other than OIL???
ITM B School,