Short-covering after a sharp fall have contained losses in crude oil prices. The ongoing tension in Venezuela also supported crude oil prices.
Initially, crude oil prices were under pressure on concerns about the outlook for the global economy. The prospect of higher crude oil production in the US due to the shale revolution kept crude oil prices under pressure.
Recently, the IEA projected that US crude oil production would keep setting annual records until 2027 and will come at more than 14 million barrels per day through 2040.
However, short-covering after a sharp fall contained losses in crude oil prices. The ongoing tension in Venezuela also supported crude oil prices.
The US imposed sanctions on Venezuela's state-run company PDVSA, leading to a sharp jump in crude oil prices on expectations of supply disruption. Both the API and EIA reported a minor build-up in inventories compared to what was expected. As a result, crude oil prices extended gains.
Sentiment was bullish in the second half of the week as Saudi Arabia's crude oil supply to the US declined. But US President Donald Trump said he may soon meet China's Xi Jinping to finalise details of a possible trade deal as he said negotiations in Washington were making progress.
This raised doubts about a trade deal and contained gains in crude oil prices.
Base metals moved sharply higher this week on optimism about a trade deal between the US and China. A steep decline in the dollar pushed base metals sharply higher.
LME nickel climbed to a three-month high on signs of increased demand. Investors worried that one of the world's largest producers, Brazilian miner Vale, could curtail nickel supply in an already tight market.
Hence, nickel was positive this week. However, aluminum was under pressure this week after the US lifted sanctions on Russian company Rusal, removing the threat of a major supply disruption that has lingered since April last year.
The US targeted Chinese technology giant Huawei, with charges of fraud, which put trade talks in an uncomfortable position. Base metals came under pressure as China?s Caixin manufacturing PMI faltered sharply.
Ahead, the ongoing crisis in Venezuela is a matter of concern for the crude oil market. The escalation in the issue with the US imposing sanctions on Venezuela's PDVSA could lead to supply disruption. Venezuela's crude oil production declined to 1.34 million b/d in 2018, from 1.91 million the previous year. The issue is unlikely to be resolved anytime soon due to the entry of Russia into the picture.
Saudi Arabia's crude oil supply to the US has declined. OPEC's compliance rate has also risen sharply in the last month. The dollar is declining and this too may support crude oil prices. On the other hand, inventories are quite volatile.
There are concerns about global growth due to trade wars and a tight monetary policy. This may have a negative impact on crude oil demand. US crude oil production is rising continuously. This may pressurize crude oil.
The market is nervous about whether trade talks between the US and China will materlise or not. Overall, crude oil is expected to experience sharp volatility in coming sessions.
(The author is Head - Commodity Research & Advisory, Anand Rathi Commodities)Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.