Oil responded to supply glut in November and December 2018, in complete contrast to the October 2018 theme, when Iran sanctions and pipeline issues in the Americas were expected to limit supply. With global growth expected to taper in 2019, oil would continue its lower bias unless OPEC moves aggressively to cut supply. Very low oil prices are also not desirable for Trump as shale producing part of US economy is significant for the overall US growth. Oil would find some bottom around $45 on Brent and can average around $60 in 2019.
Indian domestic scenario is a bit rosier than that in 2018, with inflation being low and with RBI now free to go ahead with rate cuts. Indian Current Account Deficit would continue to be around 60 billion USD. We still see a need of around 30-35 billion USD of flows into India to stabilize INR. With the global situation being fragile, INR is very vulnerable to flows into the country. As volatility is in-general high, Indian debt would not be very attractive from a risk-adjusted return perspective in 2019. FII Debt outstanding number is already high and even a 10 billion USD outflow, will create havoc in the market like it did in the past year.
Unless Brent collapses to 40- levels or jumps above 70+ levels, the CAD would hover in the range of 15-17 billion per quarter. While INR has moved in tow with Brent in 2018, 2019 can see some divergence between Brent prices and USDINR. As Brent shows stability and range-y behavior, INR would respond to other events more closely.