'OPEC move may help balance oil market; support for Nymex prices seen at $55/bbl'

Sakina Mandsaurwala

Precious metals continue to trade weak on account of overdue extended trade tensions between the US and China. Strong job growth data in the US highlights the resilience, indicating that US Fed Chairman Powell might keep policy unchanged in the upcoming FOMC meeting in December.

In the base metal complex, except copper, all other metals continue their selling trajectory due to subdued demand. Copper prices traded positive with 2.5 percent post the US strong numbers, Adrawdown in inventory levels and on the encouraging China trade talk speculation.

Both Nymex Crude and Natural gas closed higher with 2 percent gains. Crude oil remained supported as the OPEC+ nations surprised with additional cuts to avoid the oversupply in the global oil market while Nymex natural gas closed higher on the forecast of moderate weather next week.

The OPEC policy meeting last week has drawn the crude oil investors' attention. Crude oil investors had focused their attention on OPEC's oil policy. Initially, OPEC members agreed for additional cuts of 5,00,000 bpd for the first quarter of 2020. However, there was a new development after the Friday meet with Russia, wherein Saudi Arabia stated that the total oil production cuts implemented will be 2.1 mbpd. Currently, they were limiting its oil production by 1.2 mbpd as agreed by the members during 2018.

Saudi further said that they will continue to voluntary cut its oil production by 4,00,000 bpd if all producers strictly maintain its full quota. The reason behind this move is the group's expectation that the demand will slowdown in the first half of 2020 and the US will continue with its expansion plans. After this move, the global demand-supply picture balanced a little with the market showing a smaller surplus of 0.5mbpd into the first half of 2020.

We expect this OPEC move to help balance the oil market and keep prices supportive at $55 per barrel. Also, if the US-China signs the phase one trade agreement, it would further boost the investor sentiment and help oil prices rally. Therefore, we expect the upside in Nymex Crude prices to remain supportive at $52-55 per barrel in the coming quarter of 2020 and move higher towards $65 per barrel. Currently, Nymex Crude prices are trading at $59 per barrel.

(The author is Commodity Analyst at Narnolia Financial Advisors.)

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