OPEC's strong efforts is a strong positive for the oil prices to stabilize. Also, looking at efforts for resolution of US-China trade war, Nymex crude oil prices should be moving towards levels of $55-$57/bbl.
Last week, commodity prices closed with affirmative gains with precious metals ending slightly positive while base metals complex finished with weekly gains of over 1 percent with the exception of Lead that lost 1 percent. Energy prices too joined the rally with crude oil and natural gas both gaining 3 percent and 7 percent, respectively.
The markets remained optimistic over progress on US-China trade deal with China's additional stimulus adding to the bullish sentiments. The upcoming senior level US-China meeting on January 30-31 will keep the markets on edge. Oil market got the recent boost after OPEC reported that its December oil output has fallen sharply easing the surplus supply pressures.
OPEC says its December output fell by 751,000 barrels per day (bpd) to 31.58 mbpd. It is surprising that the OPEC producers had started to cut its oil output in December itself, which suggests their strong willingness to bring the market back into the balance. This action will surely convince the market participants that further sharp slide in crude prices is a low probability scenario as supply would be adjusting swiftly if demand recedes.
On the other side, the record US oil production of 11.9 mbpd undercuts the OPEC effort of reducing oil surplus.
Also, US is expected to extend waivers to countries importing Iranian oil as the first round of US oil waivers are set to expire in May 2019. This extension of waivers will keep Iranian oil in the market for a while now and build supply pressure in the market.
But in the short term, OPEC's strong efforts is a strong positive for the oil prices to stabilize. Also looking at efforts for resolution of US-China trade war, Nymex crude oil prices should be moving towards levels of $55-$57/bbl.
The author is Commodity Analyst, Narnolia Financial AdvisorsDisclaimer: 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.