'Crude oil supply tightness to support prices'

Sakina Mandsaurwala

Last week, precious metals price rally halted ahead of Fed’s speech over future monetary policy. However, weak macro-economic data across the globe and growing signs of recession in the US limit the downside in prices.

Comex Gold prices fell 1 percent and Comex Silver prices closed down 0.5 percent at $17.01/oz. Base metal prices traded mixed with nickel, copper and zinc closing in red while lead and aluminium gained on rising supply concerns.

Similarly, energy complex also closed the week on a mixed note with Nymex Crude rising 0.9 percent on rising supply worries while Nymex natural gas closed the week with 2 percent losses.

Crude oil prices have registered losses since May 2019 due to rising trade tension, weaker economic data worldwide and emerging signs of recession adding to worries over future oil demand growth.

Looking at the recent global demand-supply picture, the market is in a deficit of 0.73 mbpd and with the OPEC production curbs in place, the deficit may increase to 1.6 mbpd. The looming sanction on Venezuela is further threatening its oil production if the Trump doesn’t extend a 90-day waiver leading to more output curbs. Last week, the US reported a huge 2.8 mbpd draw from Cushing, Oklahoma after the commencement of the pipeline transporting crude oil from the Permian Basin to Gulf leading to higher exports. The US crude futures curve also flipped into the backwardation, another signal of tightening oil supply.

Apart from the above factors, any trade deal optimism and central bank easing are expected to support oil prices. Therefore, we expect Nymex Crude prices to stay supported and trade higher towards $60-62 per barrel in the coming quarter of 2019. Currently, Nymex Crude prices are trading at $55 per barrel.

The author is Commodity Analyst at Narnolia Financial Advisors Ltd.

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