OIL  SHREDS  GLOBAL  STOCK  MARKETS

Everyone from the top to the bottom-line of global economy is just talking about one thing and that is oil. Why? We need it, not only for pollution but for running everything. With global demand already weak and Iranian oil yet to hit markets, oil price is expected to touch $ 20 this year. But how can stock markets fall with the declining oil prices. There should be a negative co-relation between stock markets and oil not a positive one. Decline in oil prices enhance productivity and reduces price rise. But this is not happening; stock markets are actually falling hand in hand with oil prices. This positive correlation tends to be there because of liquidity provided by oil producing countries. Well, the reason has become very apparent. Declining oil prices reduce surpluses of oil producing countries which invest in sovereign wealth funds. These sovereign wealth funds and hedge funds are responsible for sudden gyrations in stock markets from US to Europe to Asia. Our own equity benchmarks fell 19 month low around 1.3% today. For the whole week, BSE Sensex lost 1.9% whereas Nifty 50 declined by 2.1%.

But, is this the only reason for positive correlation between stock indices and oil prices. Another significant rationale is high probability of US economy falling into another financial crisis similar to 2008 and this time caused by high debt of shale oil producers, funded by bankers and hedged in derivatives. If US economy becomes messier again, china slowdown will look like a flash in the pan. Thus the need of the hour is change in perception among oil producing countries. They need to understand that falling oil prices will drown their own economies. To keep them afloat, oil needs support. Though India is not a big exporting hub, we need both US and China to buzz and hum to keep our economy moving. And of course we need foreign surpluses of oil rich countries to be deployed in our infrastructure, energy and other strategically important sectors. Thus falling oil price is not a blessing but predicament in disguise which has to be managed and maneuvered for our economy which needs both oil and foreign capital like oxygen and water.