'OPEC unlikely to take aggressive measures given sharp rise in crude prices, progress on vaccine front'
Crude is running too hot as we move towards the next big event which is the OPEC and allies meeting on November 30-December 1.
November 29, 2020 / 07:45 AM IST
NYMEX crude oil breached the $46 per barrel level this week for the first time since March 2020. Similar to most of the other commodities, crude oil has also recouped most of the losses since the virus spread intensified in March.
While commodities, in general, have been rising, crude oil's rally is a recent phenomenon. Crude hit a low of $33.64 a barrel in early November, the lowest since May, but has rallied over 35 percent since then and is currently trading near March highs.
Crude oil slumped to multi-month highs earlier this month as rising virus cases forced the US and European countries to impose stricter restrictions denting demand expectations. Meanwhile, the fourth monthly rise in OPEC production in the month of October added to oversupply concerns.
Crude, however, witnessed a sharp rebound amid expectations that OPEC and allies may take additional measures to rebalance the market. The momentum intensified further as multiple companies reported success in vaccine trials on back to back Mondays. Crude rallied over 8 percent on November 9 as Pfizer reported success on the efficacy of its vaccine candidate. Crude rallied 3 percent on November 16 as Moderna also reported success in trials. Crude further gained over 1 percent on November 23 as AstraZeneca also achieved success in trials. Crude rose also on easing political chaos in the US as the transition of the Biden administration to power began officially.
Crude has been rising despite negative developments in the form of rising virus cases, mixed economic data from major economies, rise in Libyan output to pre-blockade days and jump in US crude oil rig count to May highs.
Crude is running too hot as we move towards the next big event which is the OPEC and allies meeting on November 30-December 1. OPEC and allies are largely expected to extend the current production of about 7.7 million barrels per day for additional three to six months. The current deal calls for curtailment in production cuts to 5.8 million bpd in January 2021.
The recent rise in price indicates that market players have factored in that OPEC may defer further production hike so unless there is any major announcement, crude oil could become vulnerable to some correction. With a sharp rise in crude prices and signs of progress on the vaccine front, OPEC is unlikely to take aggressive measures. Additionally, there are other challenges in the form of rising virus cases and easing euphoria about vaccine amid efficacy concerns as well as logistical challenges.
(Ravindra Rao is the VP - Head Commodity Research at Kotak Securities.)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.