Oil prices have moved up from its US$40-45 range to US$ 45-50 range. The uptick in prices has
been caused by several factors. In the initial days after the US elections the news was that the
new President was against fracking and that may affect oil supplies. But a study of the last three
or four decades of oil price movements shows that there is no relationship whatsoever with who
wins the elections and the direction of oil prices. There is no reason to expect oil supplies to
improve in the near future as the scope for oil output increase from OPEC + is very negligible at
the moment. This is the case with all the major oil suppliers. China accumulated oil stocks in the
initial part of the year, but that activity has slowed down in the recent months. But China is
reported to be withdrawing stocks for refining for the local market. A pause in oil purchases may
be occasioned by an unexpectedly strong Yuan which limits the impact of rise in global prices on
domestic costs. One of the major worries for oil producers is the strong second wave of the
pandemic. The extent of its spread and the intensity will have some impact on prices as
prolonged lockdowns result in demand destruction which was witnessed during the first wave.
While in the US it is still continuing at the same rate, the sting seems to be less painful in most
parts of Europe. This may be partially beneficial in keeping demand up. That the mainland China
is mostly free from the second wave, and that things seem to be improving in India, are signs
that things may not deteriorate as much as it was with the first wave. Yet another factor which
could help oil prices is the holiday season and the strength of the winter climate. Winter is
expected to be stronger than usual from the first indications, which may enhance the need for
haying devices. The second factor, that is travel and holidaying may be there but would be more
or less muted compared to the yesteryears. Forecasts for oil prices put the price potential in the
current move to US$ 60 or thereabout. But fundamentally, for oil prices to sustain at higher
levels, we may need to see the US$ depreciating against all currency majors during the
economic recovery in the US, but with likely higher inflation and probability of rates edging
higher a significant depreciation in the US unit may not be possible. Also, one may need to see
asset movements out of the US currency to realize a higher level of depreciation. Under the
current circumstances, the probability is quite low for either of the events
