OPEC’s crude oil production continues to fall, helped by a decline in output cut by Venezuela, Saudi Arabia and Iraq. Hence, OPEC is committed to balancing the market.
Crude oil has been stuck in a narrow range in the last couple of sessions. There are no fresh triggers in the market. Earlier this week, Saudi Arabia’s energy minister, Khalid Al-Falih, said that it would be too early to change OPEC’s output policy at OPEC’s April meeting. Both, API and EIA crude oil inventories declined sharply in the week ending March 8.
OPEC’s crude oil production declined in February. Hence, this shows that OPEC is committed to rebalancing the crude oil market. However, there is much uncertainty regarding a trade deal between the US and China. Latest updates say that US president Donald Trump and his Chinese counterpart have pushed back their meeting to at least April.
This has restricted gains in crude oil prices. A marginal drop in the Baker Hughes rig count did not have any impact on crude oil prices. So, overall, crude oil was range bound this week.
On the other hand, most base metals were under pressure on account of strength in the dollar. Concerns about the outlook for the Chinese economy continued to be a headwind for base metals. After shocking trade balance data earlier this month, China’s industrial production and retail sales data continued to be weak.
Copper inventories rose sharply on the LME. Hence, higher supply led to a sell-off in copper. In domestic base metals, a sharp appreciation in the rupee wreaked havoc. However, zinc was higher this week as inventories at the LME are at the lowest levels since 2007. China said on March 15 that it would implement value-added tax cuts from April 1. This supported base metals.
Going ahead, crude oil prices may continue to trade sideways in the short term. OPEC’s crude oil production continues to fall, helped by a decline in output cut by Venezuela, Saudi Arabia and Iraq. Hence, OPEC is committed to balancing the market.
OPEC and its allies will meet in Baku on March 17-18 to review the ongoing output curbs. This meeting is important ahead of the bi-annual meeting scheduled in Vienna in April. Meanwhile, OPEC’s secretariat urged oil producers to keep going with efforts to prevent a surplus this year. Also, inventories are falling. This may support crude oil prices.
However, as per OPEC report, global oil demand is expected to increase only by 1.24 million bpd in 2019, from 1.43 million bpd growth last year. A slowdown in global economic growth is expected to contribute to low crude oil demand.
On the other hand, US crude oil production continues to rise sharply. According to the EIA, US crude oil output may average around 12.3 million bpd in 2019 and 13 million bpd in 2020. The IEA has warned that chaos in Venezuela may challenge the global crude oil market.
As there is a lack of concrete driving factor in the market, crude oil may trade range-bound in the short term, with a focus on the Baku meeting outcome.
The author is Research Analyst- Currency and Commodity, Anand Rathi Shares and Stock Brokers.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.