Ravindra V Rao
Crude oil has been range-bound this week. Much uncertainty prevailed regarding the trade deal between the US and China. In global markets, trade tensions have resurfaced as the US President Donald Trump said that he is unlikely to meet his Chinese counterpart before the March 1 deadline.
However, short-covering after a sharp fall contained losses in crude. API reported a drawdown in crude inventories. This supported prices of crude oil. OPEC crude oil production declined sharply in January largely due to a steep cut in Saudi Arabia's production. Sentiment turned bullish after Saudi Arabia said it would reduce production to nearly 9.8 million barrels a day in March, well below its production quota under a deal to cap output.
The International Energy Agency (IEA) warned that the political crisis in Venezuela risks disrupting the global crude oil market as the type of oil it pumps becomes increasingly scarce. The EIA reported a sharp rise in the inventories. But that did not have any impact on crude oil prices. Crude oil extended gains on optimism over OPEC's resolve to rebalance the market.
All five base metals were under pressure as the US President ruled out the possibility of meeting the Chinese President before the trade-truce deadline of March 1. Further, strength in the dollar weighed on base metals.
The International Monetary Fund (IMF) warned about a slowdown in the global economy eroding the outlook for demand. Risk appetite declined due to concerns about the outlook for China's economy. Hence, the sentiment remained bearish. However, Donald Trump asserted that trade talks between the US and China were making progress. Hence, signs of progress on trade matters supported base metals.
Trump is also considering pushing back the deadline for the imposition of higher tariffs on Chinese imports by 60 days. China's trade balance data showed strong growth. Its aluminium exports surged to a record high in January as rising output from new smelters pushed more metals into the global market.
Ahead, the outlook for crude oil is mixed. OPEC's production declined in January largely due to Saudi Arabia. The country has pledged to further cut production in March. This augurs well for the crude-oil market.
According to OPEC, 2019 oil demand growth is forecast to rise to 100 million bpd, from 98.76 million last year. However, much uncertainty continues regarding trade matters between the US and China. Also, inventories and the Baker Hughes rig count are volatile. The ongoing crisis in Venezuela is a matter of concern.
The IEA has warned that Venezuela's oil crisis could disrupt the global crude-oil market. Non-OPEC supply is expected to average 64.34 million bpd in 2019, up from 62.17 million bpd the previous year. Moreover, the dollar is rising. Hence, there is no clear direction for crude at the moment. Overall, crude oil is expected to stay range-bound in the short term.
(The author is Head - Commodity Research & Advisory, Anand Rathi)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.