INSUBCONTINENT EXCLUSIVE:
By Pritam Kumar PatnaikBrent and NYMEX crude remained weak this week and were unable to find support despite OPEC announcing a supply cut of
1.2 million barrels per day (bpd) from January.
OPEC and some non-OPEC producers, including heavyweight Russia, announced they would cut oil
supply by 1.2 million bpd, with an 800,000 bpd reduction planned by OPEC-members and 400,000 bpd by countries not affiliated with the
group.
However, the move only briefly helped the oil prices move higher.
Prices remained weak during the week pressured by weakness in
global stock markets and doubts that planned supply cuts led by producer club OPEC will be enough to rein in oversupply.
Adding pressure to
the market was Russia's slower-than-expected planned cuts in production as part of an OPEC-led deal
Russia said it planned to cut oil output by just 50,000-60,000 bpd in January as it gradually builds to an agreed cut of 2,20,000
bpd.
Adding to bearish sentiment is speculators cutting their net long positions by 25,619 contracts to 1,44,775 in the week to December 4
Some respite for oil was observed amid disruptions to Libyan oil exports from the country's biggest oil field, El Sharara
Additionally, downside was limited after International Energy Agency (IEA) said the global oil market could move into deficit sooner than
expected, thanks to OPEC's output agreement with Russia and Canada's decision to cut supply
IEA kept its 2019 forecast for global oil demand growth at 1.4 million barrels per day, unchanged from its projection last month, and said
it expected growth of 1.3 million bpd this year.
Supply-wise, US crude inventories at Cushing, Oklahoma, the delivery point for US crude
futures, fell by nearly 822,000 barrels in the week through December 4.
Domestic crude remained weak despite the domestic currency weakening
Looking ahead, the demand and supply projections for next year will be key driver for prices in the next few weeks.
For 2019, IEA demand
growth outlook remains at 1.4 million bpd even though oil prices have fallen back considerably since the early October peak
However, OPEC said demand for its crude in 2019 would fall to 31.44 million bpd, 100,000 bpd less than predicted last month and 1.53 million
bpd below what it currently produces.
Because of falling demand and rising supplies in the US, price upside move could be limited
Additionally, oil prices could also track the uncertainty over the global economy stemming from US-China trade tensions, which could
undermine oil consumption next year as growth in supply gathers pace.
Some of the support provided by lower prices will be offset by weaker
economic growth globally -- particularly in some emerging economies.
Brent crude oil prices could remain in the range from $58-63 per barrel
and WTI crude prices could remain in the range of $49-54.
Technically, Crude January contract had range bound week with high made at Rs
3,845 levels and low at Rs 3,658 levels
In prior week, there was a formation of Bullish candlestick pattern
However, there was no follow-up action in recent weeks
This suggests that consolidation in a broader range is ongoing post forming a short term low at Rs 3,499 level
On the daily chart, prices are testing the channel resistance along with 15 days of exponential moving average
Internationally, Brent Crude futures have been moving in a range from last few days after the sharp fall
Such action indicates continuation pattern and thus, a break below $58 will resume the medium term downtrend towards $50 levels
On the upside, $63.70 is the crucial resistance
For MCX Crude, Rs 3,895 is the resistance
Any break below Rs 3,600 will resume downtrend towards Rs 3,250-3,200 levels.
GoldBullion prices ended mixed this week, with gold ending
with small losses and silver with small gains.
Gold prices were weighed down by a firm dollar
The yellow metal started on a firm note as a slide in global shares pushed investors to seek shelter in bullion while waning expectations
of US interest rate hikes next year also supported the metal's appeal.
Losses in global stock markets snowballed on Monday on worries over
slowing growth and fears that a rise in US-China tensions could torpedo chances of a trade deal.
The dollar earlier in the week remained
lower on expectations that the US Federal Reserve may slow its interest rate hike trajectory next year
Fed funds futures pricing has been reducing the market expectations for hikes over the next 18 months.
According to CME FedWatch tool, only
3.4 per cent of the market believes that the Fed will hike rates by December 19, 2019
Adding to positive sentiment are data from CFTC which showed that hedge funds and money managers trimmed their net short positions in Comex
gold contracts in the week to December 04
Data revealed that speculators trimmed their net shorts by 50,289 to 1,539 contracts
Additionally, holdings in SPDR Gold Trust ETF rose 0.50 per cent to 763.56 mt this week.
However, investors booked some profits ahead of
the highly anticipated Fed meeting next
The US Federal Reserve is widely expected to raise interest rates at its December 18-19 meeting, but the focus is on how many rate hikes
Expectations of fewer interest rate rises is positive for gold as lower interest rates reduce the opportunity cost of holding non-yielding
bullion.
Domestically, gold ended lower despite the domestic currency weakening against the US dollar
Looking ahead, along with the Fed meeting, investors will keep an eye out for developments around Sino-US trade talks, and Brexit after
lawmakers in Prime Minister Theresa May's Conservative party gathered enough support to trigger a no-confidence vote in her
leadership.
With the US-China talks appearing to be going well, this could put the dollar under pressure in coming months and support gold
However, the deadline to reach any agreement will be March 1,, 2019
So, LBMA Spot gold prices could remain in the range from $1,235-1,265 per ounce and LBMA spot silver prices could remain in the range from
$14.21-14.90 per ounce.
Technically, gold February contract had a volatile week in which prices first moved higher towards Rs 32,118 levels
and then reversed on downside towards Rs 31,500 levels
This has formed a Shooting Star candlestick pattern on the weekly chart, which suggests that prices failed to sustain at higher levels
This is a negative sign over the short term.
Internationally, LBMA Gold Spot has been moving in a range after touching the high of $1,250
On the other side, Indian rupee is in an appreciative trend over the short term, which can keep gold prices under pressure
MCX Gold has broken five days of exponential moving average recently, which suggests bearishness
One can expect gold to trade with negative bias with Rs 31,900 as resistance on upside whereas on downside, important support is placed at
(The writer is Head, Reliance Commodities)
