Crude oil: Crude oil prices on a slippery slope

By Pritam Kumar Patnaik


Last week, crude oil was stuck in a narrow range, with futures contracts slightly higher, but suffering a weekly loss of nearly 5%.

Market sentiment has been largely dominated by expectations of a slowdown in demand in the coming quarters. The European Union is also joining a growing group of major economies signaling a downward revision of growth forecasts, fueling fears of an impending slowdown in global growth.

Optimism built around expectations of a quick resolution of the trade stalemate between the United States and China seems to be choking. US President Donald Trump said meeting with Chinese President Xi Jinping when he was in Asia at the end of the month was perhaps too early in terms of trade negotiations.

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

Traders continued to badess the risks for the global supply resulting from OPEC production cuts and US sanctions against Venezuela, which supported prices.

Opec and its non-Opec partner are on track to implement the agreed reduction of 1.2 million barrels per day of its daily crude output, to manage the overabundance of global supply and to rebalance the market.

Factors such as the continued attack of growing US production, which maintains a record weekly record of 11.9 MBD, the increase in stocks that has accumulated and the strength of the currency facilitate the development of feelings bearish for the crude.

Oil has been on the rise since the beginning of the year, with contract prices for WTI crude oil rising to about 16%. The political crisis in Venezuela was one of the reasons for the price rises in previous weeks, but this seems to have already been incorporated into prices, and future worries about global growth will dictate future price developments .

You should avoid buying oil quickly. Long positions can only be considered when WTI crude trades at around $ 50 per barrel.

(Pritam Kumar Patnaik is Product Manager at Reliance Commodities)