Rising crude oil prices to dampen corporate balance sheets

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Mumbai: As crude oil prices rise more than 50% so far in 2016 to their highest level in 17 months, along with government finances, corporate balance sheets also may reel under pressure in the near to medium term.

Crude oil prices shot to their highest levels since mid-2015 on Monday after Organization of the Petroleum Exporting Countries (Opec) and other producers reached their first deal since 2001 to jointly reduce output in order to curb the supply glut and drive the market higher.

Brent crude soared to $56.44 barrel on Monday—the highest close since 21 July 2015. It has gained 51.42% for the year to date.

India, Asia’s third-largest economy, is likely to face the brunt, as it imports around 80% of its crude oil requirements.

Going forward, the rising oil prices will exert pressure on margins and hurt the profitability of companies such as oil marketers, airlines, auto manufacturers and consumer goods makers that use crude oil and its derivatives as inputs.

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