Crude prices likely to remain resilient despite OPEC’s plans to raise output, to worsen India’s trade deficit

Oil prices are expected to remain resilient on increasing demand in the months ahead, despite the agreement reached by OPEC+ to increase oil output. It could worsen India’s ongoing trade deficit and current account deficit, according to the latest research report from Scotiabank.

In addition, an escalation of US-China trade war could cast a shadow on future global demand, spurring risk aversion across global markets and weigh on EM Asian currencies including the INR. It will intensify risk aversion if any news emerges regarding US tariffs on another USD 16bn in Chinese goods by the end of July.

In the medium term, however, we expect China and the US to finally resolve their trade dispute through dialogue before US President Donald Trump shifts his focus to the midterm election set for 6 November 2018. India’s CPI inflation is expected to accelerate further in June from 4.87% yoy a month earlier.

However, the headline print will ease moderately from July onwards as the impact of the GST introduced last July is set to fade away.

"We remain bearish on the INR and expect USD/INR to rally through the August 2013 high of 68.845 before heading for the 70 psychological resistance level. India’s foreign reserves are anticipated to shrink further in the coming weeks," the report added.