Brent oil futures surge 29% to $119! Asian markets crash up to 7%; India braces for selloff

Brent oil futures soared about 29 per cent to trade near $119 a barrel level on Monday, sending equity markets from Korea to Japan tumbling up to 7 per cent. Gift Nifty futures plunged 826.50 points, or 3.42 per cent, hinting at another round of selling in India.

By 8.34 am, Brent futures for May delivery were quoting 26.6 per cent, or $24.81 per barrel, higher at $117.58 a barrel mark. They hit a high of $119.46, up 28.8 per cent, earlier today, as Kuwait and Iraq started reducing oil output amid fears of prolonged disruption to shipping via the Strait of Hormuz.

The rally in oil prices also follows a warning by Qatari energy minister Al-Kaabi, who predicted crude oil could surge to $150 per barrel within two to three weeks if tanker traffic remains unable to move through the Strait of Hormuz, the strategic waterway that carries roughly one-fifth of the world’s oil and gas supplies.

The rise in crude oil prices has important implications for Indian equities. Historically, and particularly in recent months, crude oil and the Nifty 50 have shown an inverse relationship. This inverse correlation is significant for India, given that the country is a major importer of crude oil. Rising oil prices tend to increase the import bill, put pressure on inflation, and weigh on market sentiment, often translating into volatile equities market, said  Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities.

The combination of commodity cycle rotation, an elevated gold-crude oil ratio, and rising geopolitical risks suggests crude oil may be entering a stronger phase of the broader commodity cycle, Sheth said.

"For India, the world’s third-largest oil importer, the sharp rise in energy prices has intensified macroeconomic concerns, raising input costs for refiners, oil marketing companies, and energy-sensitive sectors such as transportation, power and cement. Higher crude prices also risk widening the current account deficit, fuelling imported inflation and exerting renewed pressure on the rupee. Against this backdrop, the energy shock reinforced global risk-off sentiment and played a key role in the week’s broad-based selling pressure across Indian equities," said Ponmudi R, CEO - Enrich Money in a weekly noted.

(More to come)