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Last Updated : Oct 15, 2020 02:38 PM IST | Source: Moneycontrol.com

Lack of clarity on OPEC production stance, US stimulus likely to keep oil prices choppy: Kotak Securities

Crude oil may remain choppy until there is more clarity on OPEC production stance and US stimulus however, we maintain sell on rise view amid increasing challenges to demand.

Ravindra Rao

COMEX gold trades modestly lower near USD 1900/oz after a 0.7 percent gain yesterday. Gold bounced back, after taking support near the USD 1880/oz level; however it is struggling to build on the momentum. Weighing on gold price is recovery in US dollar index from recent losses and uncertainty about US stimulus.

The US dollar index is off recent lows on back of increased safe haven buying and concerns about European economies amid rising virus cases and Brexit uncertainty however concerns about health of US economy has limited upside. Risk sentiment has weakened amid uncertainty about US stimulus, setbacks on vaccine trials and COVID-19 testing, rising virus cases, mixed economic data and geopolitical tensions. The wide disagreement between Democrats and Republicans and nearing elections have reduced expectations of an imminent deal however market players are still seeing possibility of a deal post elections.

A sharp resurgence in virus cases in Europe has forced countries to take measures to limit the spread. Meanwhile ETF inflows show buying interest in gold however, the pace was modest. Gold holdings with SPDR ETF rose by 0.3 ton to 1277.939 tonne.

Close

Gold may witness choppy trade as market players continue to assess development relating to US stimulus, Brexit and rising virus cases however, we expect buying interest to emerge at lower levels as uncertainty about US economy may limit upside in US dollar.

NYMEX crude trades little changed near USD 41 per barrel after a 2.1 percent gain yesterday, which marked its second consecutive gain. Crude oil has witnessed mixed trade in last two sessions but continues to trade within the broad range of USD 38-41.5/bbl as market players await more clarity on OPEC’s production policy as well as US stimulus.

Market players are now gearing up for OPEC and allies review meeting today and October 19. The rise in Libyan oil production following lifting of months of blockade and weaker demand recovery owing to rising virus cases has led to market expectations that OPEC may alter its production policy with possible action like delay in further scheduled production hike in January. However, stable price near USD 40/bbl may give more room to the producer group to act.

Supporting crude price is API weekly report, which noted a 5.4 million barrels decline in US crude oil stocks as against forecast of 2.8 mn bbl decline. API also noted a bigger than expected decline in distillate stocks while gasoline stocks fell slightly less than expectations. Amid other factors, crude is supported by higher Chinese crude imports, which show continued demand from the nation. Also supporting crude price is EIA’s forecast of lower crude production from shale resources next month. Market sentiments were also boosted by IEA’s move to keep its 2020 forecast for oil demand unchanged at 91.7 million barrels per day.

Meanwhile, Saudi Aramco expects supply to tighten due to insufficient levels of investment, which should create a deficit, as reported by yahoo. However, weighing on crude price is demand concerns amid uneven economic recovery and rising virus cases, which has forced countries to impose additional restrictions. Setback on vaccine trials and COVID-19 testing dampened market sentiments.

Reflecting weaker outlook, OPEC has recently cut its 2021 oil demand estimate by 80,000 bpd to 96.84 million bpd. Also weighing on price is weakness in equity markets amid uncertainty relating to US stimulus. The wide disagreement between Democrats and Republicans and nearing elections have reduced expectations of an imminent deal however market players are still seeing possibility of a deal post elections with possibility of bigger stimulus in case of a win by Democrats.

Crude oil may remain choppy until there is more clarity on OPEC production stance and US stimulus however, we maintain sell on rise view amid increasing challenges to demand.

The author is VP- Head Commodity Research at Kotak Securities

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.​
First Published on Oct 15, 2020 02:38 pm
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