Brent oil rose above $125 a barrel to end near a 10-month high on Friday as the International Atomic Energy Agency (IAEA) said Iran had sharply stepped up work on uranium enrichment. Meanwhile, the S&P 500 closed at its highest level since June 2008.
The rise in oil prices has fuelled worries that slower consumer demand would stymie global economic growth, particularly as the euro zone remains mired in a debt crisis and appears headed for a recession.
A day after hitting a record high in euro terms, Brent crude jumped $1.85 to settle at $125.47, its fifth day of gains.
The news on Iran, in a report from IAEA, was seen as certain to intensify concerns about the former’s atomic ambitions. For the week, Brent crude is up 4.9 per cent, its biggest weekly percentage gain since the week to January 6.
Brent’s recent gains have been fuelled by worries over Iranian supply. European buyers of Iranian oil have cut their purchases ahead of a European Union embargo, effective July 1. Some of Iran’s biggest customers in Asia, including China, have also reduced buying.
India’s oil subsidy worries escalate
With the Iranian crisis pushing up global crude oil prices, the benchmark Indian crude oil basket is expected to reach the highest level since 2008. So far this financial year, such a rally was seen in April, when it had touched $122.07 a barrel. Though the official Friday closing price would be known only on Monday, it is expected to have crossed Thursday’s $122.06 and even breached the April mark.
If the current rally continues, it will push up the gross revenue loss of oil marketing companies beyond the earlier estimated Rs 1,40,000 crore for the current financial year. Compared to April 2011, the value of the rupee has also depreciated. It is now around Rs 49 a dollar, compared to about Rs 44 then. The average price of the Indian basket has already crossed $110, compared to $85 in 2010-11. Though India has managed to keep its crude supply intact, despite choking of payment line for Iranian crude oil, the increase in subsidy level due to non-revision of diesel, LPG and kerosene prices would put additional pressure on the government. It has provided Rs 50,000 crore as petroleum subsidy so far this year, though its share is expected to cross Rs 70,000 crore.
