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.

Ban Futures Trading in Essential Commodities: Modi-Headed Panel

Group suggests price stabilisation funds to fight inflation, ministerial-level co-ordination mechanism

A Working Group on Consumer Affairs headed by Gujarat Chief Minister Narendra Modi has recommended setting up of a price stabilisation fund and a ban on futures trading in essential commodities to fight food inflation. It also suggested a ministeriallevel co-ordination mechanism at the national and regional levels for policy formulation to evolve a single national agriculture market.
The group, which submitted its report to PM Manmohan Singh on Wednesday, gave 20 suggestions with 64 actionable points. The committee, with CMs of Tamil Nadu, Andhra Pradesh and Maharashtra as other members, was of the view that a price stabilisation fund set up by the Centre will help states in procurement and distribution of essential commodities in short supply.
On future trading, the group concluded that considering absence of strong linkages between spot and future markets, essential commodities should be kept out of the future market.
However, the government has been maintaining that there was no proposal to ban futures trading in essential commodities on the ground that no study has identified it as one of the reasons for increase in food prices.
Formed by the Prime Minister in April, 2010, in the face of soaring food inflation, the group also suggested liberalisation of agricultural markets to improve distribution from farms to consumer, increasing participation of organised sector and co-operatives in retailing to promote competition and priority lending to agri-market activities. It also recommended focusing on time-bound development of agri-marketing infrastructure including storage capacities in food deficit regions, cold chain and agro-processing besides unbundling of Food Corporation of India operations of procurement, storage and distribution. The group has recommended enlarging the scope of priority sector lending such that the agriculture marketing activities are made eligible and raising the ratio of priority sector lending to the agriculture sector further from the current level of 18%.
To minimise information "asymmetry" in the agri market, the report called for establishing a mechanism to collect and disseminate information to all stakeholders on production, import, stocks and overall availability of essential commodities besides extensive use of the Information Technology. This could be done by setting up a dedicated agency for it. It suggested preparation of a 10-year Perspective Plan for improving agri-infrastructure.

FIGHTING PRICE RISE: Modi (R) submitting report to PM Singh