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Crude oil prices on a slippery slope

Traders can look at creating longs only when WTI crude is trading close to $50 a barrel.

ET CONTRIBUTORS|
Feb 10, 2019, 02.06 PM IST
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Commodity Summary
MCX

CRUDEOIL
By Pritam Kumar Patnaik

Last week, the crude oil was stuck in a constricted trading range, with futures ending marginally higher, but suffering a weekly loss of close to 5 per cent.

The market sentiment was majorly dominated by expectations of a slowing demand in the coming quarters. With the European Union also joining a growing chorus of large economies signalling downwards revision of growth forecast, thereby stoking concerns of an impending global growth slowdown.

The optimism built around expectations of a speedy resolution of the US-China trade logjam, seems to be fizzling out. The US President Donald Trump has indicated that meeting Chinese President Xi Jinping when he’s in Asia at the end of the month may be too soon in terms of trade negotiations.

This statement put the markets in a tizzy, as the new tariffs would come into effect from as March 1, 2019. Higher tariffs if implemented, will most certainly have a negative impact on global economic growth and energy demand.

Traders continued assess risks to global supply from the Opec output cuts and the US sanctions on Venezuela, which offered some support to the prices.

Opec along with its non-Opec partner are on track to implement the agreed cutback of 1.2 million barrels per day from its daily crude output, in an effort to manage the global supply glut and rebalance the market.

Factors such as a sustained onslaught of growing US production, which is holding at a weekly record high of 11.9 mbd, increase in the inventories build up and a strong dollar is facilitating development of bearish sentiments for crude.

Oil remained higher for the year to date, with WTI crude front-month contract prices up about 16 per cent. The political crisis in Venezuela was part of the reason why prices were rising in the previous weeks, but this seems to have been already priced in by now, and going forward global growth concerns will dictate the future price trend.

One should avoid buying into oil in a hurry. One can look at creating longs only when WTI crude is trading close to $50 a barrel.

(Pritam Kumar Patnaik is Head Commodity at Reliance Commodities)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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