Oil & Dollar |

There was a time when Government used to provide subsidy on oil – the price of petrol & diesel was kept low to control inflation. Government used to compensate the oil companies for the loss they suffered due to sale of oil products at low price.

Then Government decided to deregulate the price of petrol & diesel. So the public had to pay market price for petrol/diesel. As the price of oil rose in the international market, the public had to pay higher and higher price for petrol/diesel. The logic was that government cannot provide subsidy & increase the budget deficit – fair enough,

Now suddenly, the price of oil dropped by over 40% and is likely to fall further. There are no chances in the near future that oil prices will rise again – happy days (Ache din) for the public right? Wrong! Our finance minister feels that the public will not be able to absorb future price increases, so he has decided that petrol/diesel prices should not drop. He has increased the excise duty on these products. All the benefit of oil price decline is taken away in one stroke – more than Rs 20,000 crores!

Wah! Isse kehte hain ache din!

In India, we used to see a direct relationship between the price of oil & the conversion price of US Dollar. Higher the price of Oil, Stronger is the US Dollar.

Now we are seeing an inverse relationship. Oil price has crashed over 40% and yet US dollar is getting stronger.

Looks illogical. However this is where, one needs to understand that there is no linear equation here. Too many variables decide the price of US Dollar

People feel that they have understood a market based on their past experience. However, in this volatile world, there are too many variables at play. Nobody can predict the behavior of these variables and their interplay. Market experts can analyze the movement after it has happened. Technical analysis can predict the short term movement of markets. Therefore, if you are not a full time player in the market, it is hazardous to guess the movement of the markets

So what is the solution?