Petroleum product prices are headed for further correction after the Organiztion of the Petroleum Exporting Countries (OPEC) decided not to resort to output cut to revive falling Brent crude prices.
According to experts, petrol and diesel prices may come down by Rs.2 a litre as the Indian basket price is different and is higher than spot prices.
A sharp division among the oil cartel members augurs well for emerging countries like India for at least the next 6 months when OPEC would meet again to take a call on restricting production.
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After the proposal to cut production by 1 million barrels a day was rejected, Brent crude prices plunged to four-year low of around $71 a barrel.
The impact could be much more in the coming days and in the December-January period when fund houses would reduce their exposure to underperforming commodity assets and allocate funds to high yielding equities, said analysts.
“Most OPEC members decided against production cut to protect their market share. They have deep pockets to afford a price as low as $67 a barrel. Even if the sales realisation comes, down OPEC members like Saudi Arabia, Iraq, Iran and Libya have the longest holding power to continue production.
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“OPEC wants the global economy to recover and then they can cut production to dictate prices at a later stage,” said commodity expert Vijay Bhambwani, CEO, BSPL India.com.
“Despite the fall in prices, the demand for oil has remained the same and, thus, there is little scope for improvement in prices. The next two months are crucial when big fund houses like Morgan Stanley will give direction to their fund allocation. Most likely they will reduce their exposure to commodities, an underperformer, and the real impact can be seen then. The price correction is still not over, there is much more left to be seen.
“The rebalancing in portfolio allocation is expected to bring down prices to $60 a barrel,” said Nitin Nachnani, Research Analyst, Geofin Comtrade.
“Brent is expected to touch $60 in six months or so, although few analysts are calling it to reach the level in the next two to three months. By retaining the quota, OPEC has put the onus of supply management onto non-OPEC oil producing countries,” said Aviral Gupta, investment strategist, Mynte Advisors.