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Profiting from Correction in Crude Oil Prices

Low crude oil prices are good for a number of industries that use crude or its derivatives in some form or the other. We look at the biggest gainers from the slump in crude

The falling price of crude has spread jitters across the world. A weak growth in the global oil demand, the current excess supply and the ever-growing production of shale gas in the US seem to have combined to bring about the 50 per cent decline in crude since the highs of $107 per barrel in June 2014.

Where will crude trend? By current indications, low crude prices are here to stay. "We're never going to see $100 anymore," told Prince Alwaleed bin Talal, the billionaire Saudi businessperson, recently to CNBC, referring to the $100 per barrel price marker that crude had stayed above.

Crude at $50 per barrel is really nothing out of the ordinary, according to research by Ruchir Sharma of Morgan Stanley Investment Management, based on the hindred-year average price of crude. Ruchir also reminds us that crude breached the $50 mark only about a decade back.

That is not all. Commodity prices tend to rise for a decade then fall for two decades is the most startling discovery Sharma makes in a research that goes back 200 years. What accounts for this behaviour is the emergence of alternatives that cap the prices of commodities. In recent times, shale gas has emerged as a viable alternative to crude.

If crude does indeed stay low, that's good news for a net oil importer like India. We import 70 per cent of our oil requirements. A low crude is also good for a number of industries that use crude or its derivatives in some form or the other - industries like oil-marketing companies, paints and lubricants. Over the next few days, we will feature here some of the biggest gainers from the slump in crude.

  1. Industrials