Ravindra V Rao of Anand Rathi Commodities said uncertainty prevails over OPEC's stance regarding the recent collapse in prices of crude oil and the steps OPEC would take to counter the fall
Ravindra V Rao
Anand Rathi Commodities
Crude oil prices came under pressure in the past week as well, falling duw to an oversupply. US crude oil production was 11.7 million barrels a day. Reports suggest Saudi Arabia’s crude oil production has hit a record high in November. Same is the case with Russia where the production rose to an all-time high of 11.41 million b/d in October. Hence, the global glut weighed on the price of crude oil.
Inventories continue to rise, keeping sentiment bearish. WTI crude fell below $50 for the first time in 2018 on fears that OPEC would not act decisively to clear a resurgent surplus in the crude market globally.
The Russian president said he was comfortable with oil prices at $60 a barrel. This led to fears that Russia might not join the production cut. However, crude oil recovered after reports suggested Russia had accepted the need to cut production.
Base metals, too, were under pressure during the past week. Nickel fell amid signs of surging supply from Indonesia and mounting concerns about Chinese demand for the commodity used in stainless steel. Traders were cautious ahead of the G-20 meeting, where US and Chinese leaders met to discuss trade matters.
US president Donald Trump reiterated he was prepared to impose tariffs on a final batch of $267 billion of Chinese imports if he couldn’t make a deal with Xi Jinping. However, they agreed to a temporary truce.
The aluminium giant, Norsk Hydro, said it expects global primary-aluminium demand growth to slow next year. This weighed on the metal.
Going ahead, crude oil may be extremely volatile as OPEC holds its bi-annual meeting in Vienna. Uncertainty prevails over OPEC's stance regarding the recent collapse in prices of crude oil and the steps OPEC would take to counter the fall.
Reports say OPEC might cut production by 1-1.4 million b/d. However, it will be important to see OPEC’s actual quantum of production cut. Disagreement remains regarding how many countries would join this production cut. Saudi Arabia has made it clear that it won’t cut oil output on its own to stabilise markets.
Nigeria has signalled that it may not cut production while Libya has sought an exemption (Both countries did not take part in the previous output cut).
Besides, geo-political tension has added to the risk. The US stands by Saudi Arabia following the alleged murder of journalist Jamal Khashoggi by Saudi agents. Hence, there is also apprehension that Saudi Arabia may not go in for a large production cut and risk upsetting Trump.
Over time, Trump has asked OPEC not to cut production and further lower crude oil prices. Hence, the forthcoming OPEC meeting would be quite crucial. Overall, crude oil may experience a high degree of volatility in coming sessions.
The author is Head - Commodity Research & Advisory at Anand Rathi Commodities.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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.