Oil, Gold Flare Up as West Asia Boils

Real worry for India is turmoil may spread to major oil producers such as Saudi Arabia

Global oil prices surged again while precious metals soared as tension in Libya and fears of unrest in Opec heavyweight Saudi Arabia spooked markets, mounting pressure on India, the world's biggest gold buyer and Asia's third-largest oil consumer.
Fears that oil-sparked inflation will erode the value of other assets encouraged investors to turn to gold, hoisting the precious metal to near-record levels as it glittered as a safe haven for investors in turbulent times.
As fighting in Libya raged, US crude climbed 1.5% to $106 a barrel while Brent crude rose by a similar amount to trade at about $118 a barrel. While Libya accounts for barely 2% of oil supplies, the real worry for India is the prospect that the turmoil may spread to major oil producers such as Saudi Arabia.
Oil companies in India said state-set diesel rates are 10 below market levels while petrol is about 3 below market rates. State-run oil companies are technically free to raise petrol prices, and they have done so nearly 10 times in the past year, but they are reluctant to increase prices, fearing retribution from the ruling party, which faces crucial elections in four states.
The central government has struggled to control inflation, which has become a rallying point for opposition parties. Key government allies, such as Trinamool Congress, have criticised any move to raise prices in the past, and with elections approaching, the government is likely to go slow on price hikes, particularly of diesel, kerosene and cooking gas, for a couple of months.
The government is hoping oil prices will retract to pre-crisis levels of near $80 a barrel.
Crude Threat Across Globe
BRENT CRUDE UP 1.5% TO $118 GOLD RISES TO 21,500

• Tension in Libya and fears of unrest in Opec heavyweight Saudi Arabia spook markets

• Fears of inflation eroding value of other assets encouraged investors to turn to gold

• India is the world's biggest gold buyer and Asia's third-largest oil consumer Govt Pins Hope On Oil Fall
Analysts and oil industry officials said it is hard to predict how oil prices would move. A Citigroup report said "nobody really has a clue as to how the crisis in the MENA (Middle East North Africa) region will develop, largely because no one saw it coming in the first place". "We think what is happening in the MENA matters and that markets are increasingly vulnerable, not because higher oil prices are an inflation threat in the longer term, but because they threaten growth."
Oil ministry officials said any decision to raise fuel prices will be taken by an empowered group of ministers. The government is expected to continue its existing policy of dividing the burden between upstream companies like ONGC, consumers and the government. This could upset the finance minister's fiscal calculations as the government has budgeted for a lower oil subsidy bill in 2011-12 compared with the current year.