Crude Oil prices continue to extend the recovery from sub-zero levels seen in late April and NYMEX listed WTI Oil is trading at $39.80, up 2.47% today whereas MCX Crude Oil is at Rs.3034.0, up nearly 3 percent. The massive erosion of demand due to the Covid-19 pandemic was countered by a large supply cut from OPEC+ members led by Saudi Arabia and Russia over the past few months even though the member compliance to individual cuts have been largely questionable.
The lower prices also served the purpose of forcing out the US supply which played a key role in pressuring prices last year. The US oil rig count has fallen 69% this year from 539 in mid-March to 165 last week which will eventually see production decline 50% by this time next year. As a result, US oil production will fall and average less than 8 mbpd in 2021 which should act as key underlying support for oil prices in the short term.
Crude Oil prices though are being supported by the recovering economy and driven demand, the threat of a second wave of corona virus remains a real risk to the strong uptrend in prices. OPEC+ is also due to meet later this month to discuss restoring output to normal levels as the prices have recovered. Both these factors are likely to trigger a short term corrective move in oil prices. Technically, oil prices face resistance at $40.0-$41.0/bbl and a break above this should see prices push higher and aim for $45.0-$50.0/bbl in the next two weeks.
Base Metals have recovered significantly over the past three weeks as countries remove lock-downs and ease trade restrictions after the pandemic. The recovery in metals has been led by improved demand from China which has more or less recovered from the virus spread except for sporadic cases and a fall in supply from producing countries especially South America which is now considered the new hot spot for Covid-19. We continue to remain bullish on Base Metals are a whole with price action suggesting further consolidation with an upward bias but the threat of price correction continues to loom ahead as physical buying is struggling to keep up with the strong speculative buying. Copper, the key metal among the group is expected to test Rs.455.0-460.0 next week and settle into a range whereas Nickel may rally to Rs.1000.0-1012.0 in the short term.
Precious Metals have been a real disappointment over the past few months given that the global economies are largely in a recessionary phase driven the corona virus pandemic. Gold futures are trading at $1741.30/oz, up 0.60% whereas Silver has gained over a percent and is trading at $17.73/oz since morning. The broad based consolidation comes even as the Federal Reserve lowered interest rates to near zero and launched a massive stimulus program to support the economy which is reminiscent of the financial crisis of 2008 where the FED lowered rates to zero and launched Quantitative Easing (QE) which was one of the key factors that drove Gold to $1900.0/oz in a few years
The lack of buying momentum comes from the forward looking hopes of the financial markets which is expecting the recovery to be sooner than later which in turn has kept demand for safe-haven assets at bay. Nonetheless, Gold prices may be setting stage for a strong rally in the short-medium term supported by lower interest rates and central bank led inflationary scenario.
The FOMC measures along with the threat of another flare-up in geopolitical tensions especially between US and China could see the equities suffer and bring back demand for precious metals. Technically, Gold prices have settled in a broad range of about $90.0 and we see $1745.0-$1775.0 act as a series of resistance above which Gold could rally to $1850.0-$1900.0 in the short term. Silver prices continue its consolidation below $19.0-$20.0 and only a strong breakout above this will see prices rally sharply in the long term.