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Nymex crude prices to remain rangebound on strict rebalancing measures by OPEC

We believe Nymex Crude prices will struggle sustaining at current levels in the coming days.

August 24, 2020 / 08:52 AM IST

Sakina Mandsaurwala

Precious metals prices traded flat to positive with Comex Gold unchanged and Comex Silver rising 3 percent during last week. Prices consolidated on account of delay in US stimulus package agreement, stronger US dollar and optimism on vaccine development.

Base metals prices continued to trade positive on high liquidity, weaker dollar and on hopes for China economic recovery leading to higher demand for metals. Zinc and Nickel prices gained by 2 percent and other metals traded higher by 1 percent each. Energy complex traded positive with Crude oil prices rising 1 percent and Natural gas prices increased by almost 4 percent. Natural gas prices trended higher as the tropical storm Laura has formed in the Atlantic and is expected to move into the Gulf of Mexico disrupting the functioning of production of gas.

Crude oil prices have been rising for the last three months. Oil future prices improved on market fundamentals and on signs of recovering oil demand, declining US crude production and massive economic stimulus packages in the US and Europe. But recently oil prices are facing resistance as market structure are in contango in July due to uncertainty over future world oil demand and high global oil stocks.

Hedge funds and other money managers are also turning less bullish towards oil prices after OPEC stated that the global oil demand is forecast to decline by 9.1 mbpd in 2020. The global economic growth forecast for 2020 is revised down to -4.0 percent; another bearish signal for oil demand.

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On the supply side, OPEC+ nations are imposing strict regulation to other producers to rebalance oil market. The falling US crude oil stocks from the high levels in June, and a drop in US drilling activity to a record low in July indicating further decline in US shale oil production.

We believe Nymex Crude prices will struggle sustaining at current levels in the coming days. The higher inventory levels and concerns over second wave of virus infection will keep the road and air transport demand muted. The major oil economies will need to keep the global oil market rebalanced by introducing measures both on the supply (production cuts) as well as demand side (government stimulus) to revive the economy.

We expect Nymex crude prices to face resistance towards $48-50 a barrel while on the downside prices may witness support at $35-$37 a barrel in the second half of 2020. Currently prices are trading at $42.3 a barrel.

The author is Commodity Analyst at Narnolia Financial Advisors Ltd.

Disclaimer: Narnolia Financial Advisors/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed.

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first published: Aug 24, 2020 08:52 am
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