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Commentary

Brent Crude at $120

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To continue the oil story: Brent Crude is now at $120.

Brent crude on Thursday spiked nearly USD 7 in the 90 minutes to 0800 GMT. It rallied as much as USD 8.54 a barrel to a peak of USD 119.79, trimming gains to trade up USD 6.00 at USD 117.25 by 0902 GMT. The contract has risen nearly 14% in four days.

This has to be monitored closely. Brent is more important for India than the WTI (which is the crude oil price flashed on TV and such).

The main point now is to see if this gets worse. A statement in there is:

"The market cannot accommodate another disruption, in our view, with the problems in Libya potentially absorbing half of OPEC’s spare capacity," Jeffrey Currie said in a research note.

The problem isn’t huge – right now, Libya’s doing 1.2 million barrels versus the regular 1.6. But there are issues in Bahrain, things could spread further, and there is ample reason for a temporary shortage. This shows us how dependant our world is on oil and the middle east; or at least how much the world markets think the dependency is.

If things get worse, stock markets will be negative. An external sudden shock will stymie a lot of growth, and with inflation already running high in India, there is very little room for energy price rises if we are to continue to grow at the 8%+ rates we intend to.

Yet, I think oil price rises are a good thing. If we won’t explore more sources of energy, we will keep getting these depressions whenever someone in the middle east sneezes. Yes, the Libyans need freedom. But the world needs freedom from Libya. And Saudi Arabia.

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