On the price front, strong resistance for NYMEX crude oil is placed at USD 64 a barrel, if there is a break above the same we can expect rallies towards USD 72 or more.
Oil prices rallied close its three-month-high after the OPEC+ members decided to cut their daily production limit and on signs of easing trade tensions.
In its latest meeting held in Vienna, OPEC members and Russia agreed on an additional cut of 5,00,000 barrels per day from the global oil market by next year. In an effort to limit production and lift prices, OPEC and its allies adopting production cut its strategy since late 2016.
Oil has been trading in a tight range of $50-64 a barrel for the last six months. It has been bearish ever since the trade dispute between the world’s two largest economies.
Global economic growth and demand for crude oil are highly correlated. The ongoing US-China trade dispute, and a disorderly Brexit, adversely hit global economic sentiment. A drop in vehicle sales and a slump in the automobile industry due to higher tariffs affected the demand for crude oil worldwide.
However, the supply shortfall from the OPEC+ cartel can be balanced by higher output from other countries like the US global oil market, which is currently oversupplied, and the trend is expected to continue in coming years due to growing shale oil output.
Until a few years ago, Saudi Arabia controlled global oil prices but now increased shale oil exploration through advanced drilling techniques have made the US a vital player in the oil market. Higher US production now dominates the global market.
Currently, US is the top producer of crude oil, and the country is on the track to become a net exporter of crude and other fuels for the first time in a decade.
As per the US Energy Information Administration forecast, US oil production is expected to rise by 9,30,000 bpd to a record of 13.8 million bpd next year. Net export of oil and other petroleum products from the country averaged 570,000 bpd in 2020.
The boom in shale output in the last several years has been helping the nation become the world’s largest oil producer and a major exporter.
US inventory levels are also at record highs and still growing. As per recent American Petroleum Institute data, US crude stocks surprisingly rose during the previous week along with gasoline and distillate stocks. US Energy Information Administration also reported a rise in crude oil inventories last week that defied analysts’ expectations of a drawdown.
Meanwhile, moderate growth in demand is expected for the current year and next. OPEC expects global oil demand to be an average of 99.8 million bpd this year and 100.88 million bpd in the next year.
The producer cartel projects global crude oil demand to grow by 1.04 million barrels per day in 2020 as compared with 0.98 million barrels seen this year. The agency foresees better demand for distillates from the US, a higher energy need from China and parts of Asia in the coming year.
However, the recent wave of trade reliefs like US-China interim trade deal, and a delay in fresh rounds of US tariffs will perhaps boost the global economic sentiments and demand for oil.
On the price front, strong resistance for NYMEX crude oil is placed at $64 a barrel, if there is a break above the same we can expect rallies towards $72 or more. On the downside, strong support is placed at $50 a barrel mark.
The author is Head Commodity Research at Geojit Financial Services.Disclaimer: The views and investment tips expressed by investment experts 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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.