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What is triggering the food shortage that has engulfed the world? Why is everyone pointing fingers at one another? Why has inflation rocketed throughout the world, mainly due to the food crisis? In a recent remark, US president George Bush ‘enlightened’ the world by saying that the food crisis is due to the teaming millions of the Indian middle class.

On the other hand, if the UN Special Rapporteur on the right to food is to be believed, the US and the European Union have taken a “criminal path” by encouraging use of food crops to produce bio-fuels and thus contributing to an “explosive rise” in global food prices. Last year, the US used a third of its corn crop to create bio-fuels, while the European Union is planning to have 10 per cent of its need supplied by bio-fuels. The Special Rapporteur, in a press conference, warned of worsening food riots and a “horrifying” increase in deaths by starvation.

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Crude oil traded near new all-time highs above 124 dollars on Friday after the OPEC cartel insisted the market is well-supplied and being driven by speculators.

New York’s main oil futures contract, light sweet crude for June delivery, rose 61 cents to 124.30 dollars a barrel in Asian trade after closing at a record 123.69 dollars on Thursday at the New York Mercantile Exchange. In after-hours deals, the New York futures contract soared to an all-time high of 124.57 dollars.

OPEC Secretary General Abdalla Salem El-Badri said on Thursday that there was no shortage of crude oil, brushing aside US calls for higher output to dampen runaway prices.

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World oil prices, which had threatened to break the symbolic $120 a barrel level, fell further on Friday after a strengthening US dollar and rising US crude stockpiles prompted traders to lock in profits.

New York’s main oil futures contract, light sweet crude for delivery in June, slid 46 cents to $115.60 per barrel. The benchmark contract closed down $2.24 at $116.06 a barrel during floor trading at the New York Mercantile Exchange on Thursday.

In the foreign exchange market yesterday, the dollar gained in value against the euro amid speculation the US Federal Reserve soon might end its campaign of cutting interest rates. A stronger US currency makes dollar-priced crude more expensive for foreign buyers, tending to discourage demand.

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When will crude stabilize?

International concern mounted as world oil prices edged closer to $120 a barrel. Analysts said a weakening US dollar, supply worries in Nigeria and the OPEC cartel’s reluctance to increase output have all contributed to the price surge. A weakening US dollar has spurred oil demand because dollar-priced oil becomes cheaper for buyers holding stronger foreign currencies.

Saudi Arabia is the biggest producer in the Organisation of the Petroleum Exporting Countries (OPEC), which on Tuesday said that it plans to increase its production capacity by five million barrels per day (bpd) by 2012. OPEC’s secretary general Abdalla Salem El-Badri said OPEC aimed to boost production capacity by nine million bpd by 2020. Current OPEC output stands at about 32 million bpd.

Many analysts expect the Federal Reserve to cut interest rates further this year to try to shore up the ailing U.S. economy, a move that would likely further weaken the dollar.

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The RBI hiked Cash Reserve Ratio, the amount of depositors’ money that banks need to park with it, by half a per cent to tighten money supply as part of concerted efforts with the government to ease inflation. The CRR would be hiked by 0.25 per cent from April 26 (taking CRR to 8%) and by an identical percentage from May 10.

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The price of New York crude oil surged on Tuesday to a new record high of 113.93 dollars a barrel, boosted by a weak US currency (which encourages demand for dollar-priced crude because it becomes more affordable for foreign buyers ) and tightening energy supplies. Market participants also digested news that the crude-producing cartel OPEC left unchanged its 2008 estimate of growth in world oil demand.

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Unfazed by the stock market volatility, leading financial institution Macquarie says 2008 could still turn out to be a great year for the Indian investors, who should stay put.

“India is now too important a market to ignore and we recommend investors to stay invested in the market. We think that 2008 has the possibility of being a great year for the Indian market,” Macquarie said in its first edition of Asia Equity Guide 2008.

The Sensex has slipped 4,000 points within a gap of two months taking global cues. Rise in crude prices, a fear of recession in the US and large-scale selling by FIIs had contributed to the fall.

“We believe that India will be in a sweet spot in 2008, with strong growth accompanied by falling interest rates. India is also a strong relative play on the global growth slowdown as it is relatively more immune than most other countries in Asia and earnings’ risk are isolated to certain sectors,” it said. Moreover, India is more isolated than other Asian countries with exports only 15 per cent of Gross Domestic Product (GDP).

Macquarie said that ahead of elections, scheduled in the first quarter of 2009, some sectors could be negatively affected by ‘election inertia’, at the same time, some sectors would benefit. “We believe that careful stock selection will make India an attractive market in which to hide from the global turmoil,” the report observed.

“We think the best play on the elections is the infrastructure and capital goods space, as the Government races to finish projects ahead of the pools. Our top picks in the country are, therefore, DLF, Reliance Communications, HDFC Ltd, Tata Steel and Reliance Industries,” it said.

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Oil prices steadied near $111 a barrel Thursday after jumping to a new record in the previous session on an unexpected drop in U.S. crude inventories. It rose as high as $112.21 a barrel during Wednesday’s session, surpassing the previous trading record of $111.80 set last month. Continue Reading»

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Yahoo Inc and Time Warner Inc are “closing in” on a deal where Yahoo would merge with Time Warner’s AOL Internet unit, brushing aside Microsoft’s bid for Yahoo, a source familiar with the talks said on Wednesday. Continue Reading»

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IMF today projected that Indian economic growth rate would slip to 7.9 per cent in 2008 from 9.2 per cent in the previous year owing to the global turmoil. In 2009, the Indian economy will expand at slightly higher rate of 8 per cent, stated IMF’s World Economic Outlook. In case of China, the GDP growth rate is expected to slip to 9.3 per cent from 11.4 per cent in 2007.

The report further said weak export demand and higher financing costs will dampen the growth of private investment, the key driver of growth. Continue Reading»

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