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Crude may remain choppy ahead of OPEC production policy: Kotak Securities

June 02
18:04 2020

Ravindra Rao

NYMEX crude is trading mixed near $ 35.5/bbl after a 0.1 percent decline on June 1. Crude oil has turned choppy amid mixed factors and as market players position for weekly inventory report and upcoming OPEC and allies meeting.

OPEC and allies are considering preponing their June 9-10 meeting to June 4, however, there is no official confirmation yet. The group will meet to discuss its production policy. The current deal called for a production cut of 9.7 million barrels per day in May and July and reduced cuts for the rest of the year. Comments from Saudi and OPEC members have fueled expectations that the group may extend current production cuts, however, Russia has shown some hesitance.

Given the glut in the global market, it is likely that the group may extend production cuts however recovery in crude oil price and reopening of global economies gives some room to OPEC to act. As per Reuters reports, OPEC+ producers are considering extending their production cut of 9.7 million barrels per day into July or August, at an online meeting likely on June 4.

US inventory report last week was mixed as it noted a sharp rise in US crude oil stocks but an increase in refinery utilization and drop in crude production. Early estimates indicate possibility of another 3.3 million barrels increase in US crude stocks. Ahead of the inventory report, Genscape reported that crude stocks at Cushing, the delivery terminal for NYMEX crude futures, fell to 54.3 million barrels in the week ended May 29. Drop in stocks at Cushing shows easing glut in the region which is positive for WTI price.

Crude oil is also supported by relative stability in equity market as market players continue to focus on reopening of global economies. Increased storm activity in Atlantic has also resulted in some risk premium. Concerns about US economy are high also amid violent protests across the country. Crude may witness choppy trade however general bias may be on the upside ahead of OPEC meeting.

COMEX gold trades in a narrow range near $ 1750/oz after a 0.1 percent decline yesterday. After a sharp rebound in last few days, gold is consolidating near the key $ 1750/oz level. The rally came to a halt amid relative stability in equity markets on hopes that reopening of global economies and stimulus measures by central banks and governments may help economic recovery.

Gold turned choppy also as US response to China’s security law for Hong Kong was not seen as severe. However, concerns about US-China relation rose again after Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods, including pork and soybeans, as reported by Bloomberg.

Concerns about the health of the US economy, reduced safe-haven buying and hopes of recovery in European economies on the back of stimulus measures has also pressurized US dollar lending further support to gold. ETF inflows also show robust investor interest. Gold holdings with SPDR ETF rose by 5.26 tonnes to 1128.4 tonne, highest since April 2013. Gold is holding near the key $ 1750/oz level and while overall sentiment is still positive, lack of any fresh cues and stability could lead to some correction hence fresh buying should be only at corrective dips.

The author is VP- Head Commodity Research at Kotak Securities

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