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    Oil prices looking for a pullback as trade ceasefire fuels hopes

    Synopsis

    A lot depends on how the trade deal at G20 meet plays out and the upcoming OPEC meeting.

    Crude oil drips from a valve at an oil well operated by Venezuela's state oil company PDVSA, in the oil rich Orinoco belt, near Morichal at the state of Monagas
    Further close above Rs 3,800 will breach 10 days of EMA and hints towards deeper pullback.
    By Pritam Kumar Patnaik

    Crude oil prices stabilised in the previous week as investors are starting to digest the temporary trade breakthrough between the US and China and look forward to cues from the OPEC meeting in Vienna on Thursday.

    Many investors were reluctant to take on large new positions as the G20 gathering progressed in Argentina.

    Oil found support this week after the US stocks rallied this week on the back slightly dovish stance from the Fed Governor Jerome Powell. Federal Reserve Chairman Jerome Powell said that interest rates are just below neutral, raising expectations that the U.S. central bank is closer to the end of its rate hike cycle.

    Additionally, media reports suggested that Russia is open to cutting output, along with OPEC and kept the prices from falling further.

    Meanwhile, hedge funds and other money managers raised their net long US crude futures and options positions in the week to November 20, the US Commodity Futures Trading Commission (CFTC) said. The speculator group raised its combined futures and options position in New York and London by 3,606 contracts to 168,726 during the period.

    On the supply side, US crude inventories rose for the 10th straight week to the highest in a year, adding to worries about a worldwide supply glut.

    US crude stockpiles rose 3.6 million barrels last week, exceeding expectations, to the most in year at 450 million barrels. After falling to 2-1/2-year lows in September, crude stocks have risen 14 per cent with 10 straight weeks of increases.

    The steady build-up in US crude stocks is partly due to seasonal refining maintenance, but domestic production also has surged to a record 11.7 million barrels per day.

    Additionally, prices also remained under pressure after Saudi Arabia raised oil production to an all-time high in November. According to Reuters News, Saudi output hit 11.1-11.3 million barrels per day (bpd) in November.

    Domestic prices tracked overseas trend and ended lower. However, upside remained limited as the rupee appreciated close to 1.5 per cent this week.

    Looking ahead, a lot depends on how the trade ceasefire between the US and China at the G20 meeting in Buenos Aires plays out and the OPEC meeting.

    OPEC's 175th annual meeting kicks off in Vienna on December 6-7, and the group will discuss its output policy together with some non-OPEC producers, including Russia.

    Technically, Crude December contract has formed Doji candlestick pattern after seven consecutive weeks of selloff. This Doji candlestick pattern often suggests some range bound action or pullback. It is very early to say that short term bottom is in place and hence, we have to look at the break of support or resistance level from here on for next direction.

    On daily chart, prices have showed recovery attempt after testing Rs 3,464 level on downside. It will be important to see if this rally is sustaining or not. Any close above Rs 3,730 will indicate that retracement on upside of the recent downmove has started towards Rs 4,000 levels.

    Further close above Rs 3,800 will breach 10 days of EMA and hints towards deeper pullback. However, any break below Rs 3,464 level will lead to continuation of downmove towards Rs 2,950 levels.

    Gold

    International gold and silver prices remained flat this week as investors tracked the G20 developments in Argentina.

    Gold spot initially found support above $1,215/ounce levels supported by uncertainty over the future pace of US interest rate hikes.

    Federal Reserve Chairman Jerome Powell indicated that interest rates were near normal. Powell's comments suggest that 2019 may be more of a wait-and-see approach and the assumption of any hikes may be premature.

    On the other hand, the Fed meeting minutes released this week suggested that a rate hike was imminent in December. However, it also opened the debate on when to pause further hikes and how to relay those plans to the public.

    Uncertainties related to Brexit and Italy also helped gold prices week. Currency traders in the UK remain cautious as the Brexit deal faces stiff opposition in the British parliament which goes to vote for Brexit on December 11.

    Adding to the bullish sentiment, hedge funds and money managers cut their net short positions in Comex gold and silver contracts in the week to November 20, the US Commodity Futures Trading Commission (CFTC) said. Net short positions in gold fell by 27,500 contracts to 43,364 contracts, CFTC data showed. Speculators also reduced their net short position in silver by 6,334 lots to 32,512 lots.

    Domestic bullion prices fell this week by over 1 per cent as the prices tracked the strength of the domestic currency. The rupee appreciated close to 1.5 per cent this week.

    Meanwhile, there were no fresh cues from SPDR gold ETF fund which showed that holdings fell marginally by 0.15 per cent to 761.75 mt this week.

    Looking ahead, gold's direction in the near term would be determined by moves in the greenback, which could be pressured if the Fed takes a more cautious approach to future policy tightening amid concerns of an economic slowdown next year. The Fed is meeting on December 18-19.

    Additionally, the implementation of the temporary trade truce between US President Donald Trump and Chinese President Xi Jingping could drive prices in the week ahead.

    Technically, Gold February contract continued its weakness for the fifth consecutive week on back of appreciation in the Rupee and range bound International gold prices.

    On weekly chart, there is formation of Bearish candlestick pattern, which is going to keep trend in sell on rallies mode.

    On daily chart, prices are intact downward moving channel and sustaining below eight days of exponential moving average, which suggests negativity. From last nine sessions, it has been failing to give close above prior bars high, which indicates a bearish move.

    The Open interest has been increasing continuously for the last 5 days, which now stands at 7,886 contracts compared to 4,847.

    The overall trend will remain in sell on rallies mode as long as Rs 30,850 is intact on upside. On downside, prices are expected to move lower towards Rs 30,100-30,000 levels.

    (Pritam Kumar Patnaik is Head of Reliance Commodities. Investors are requested to consult their financial advisers before taking any investment decision based on the observations made in this article)




    (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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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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