Oil prices lost over 30% of its value at Asian opening in what is seen as the biggest one-day collapse in oil prices since 1991. WTI prices snapped to its lowest level in four years at $27.34/bbl whereas Brent touched a low of $31.27/bbl earlier today.
Saudi Arabia’s decided to launch an all-out price war with Russia after the latter snubbed the OPEC+ cartel decision to cut production in a bid to boost prices which were falling due to the Coronavirus spread. Saudi has now declared that it will boost production to 10 mbpd in April when the current deal for production cut ends. Crude Oil is likely to extended losses as we go ahead as the collapse of the OPEC/non-OPEC alliance was a major shock to the oil market and without major producers stepping into to support prices – the market is at the mercy of oversupply from US and other countries. We maintain a bearish outlook on prices driven by an oversupplied market, falling demand due to the virus and an oil war between major producers.
Precious Metals, as much as they are termed as safe haven, remained weak through the day as the oil shock and lower equities kept interest in physical commodities at bay. Gold futures are trading slightly higher at $1678.20/oz, up 0.35% having rallied to $1703.90 in early trade whereas Silver lost over two percent to trade at $16.872/oz. It is unlikely that precious metals will survive another rout in oil or equities because a rise in margin calls and alternate funding will see strong liquidation in the commodities space especially precious metals. Technically, MCX Gold sees a very strong support in play at Rs.43600 below which we expect a reversal in the current uptrend whereas MCX Silver may plunge to Rs.43500-44000.0 in the short term.
Base Metals also followed oil prices today with losses averaging over two percent across the board for the basket. Base Metals came under pressure after data from China showed that the country’s trade deficit slipped into red at -7.90 bln for the first time in two years while exports dropped 17.2% and imports fell 4.0% as the economy chokes under the pressure of Coronavirus. The focus now shifts to the consumer inflation report scheduled tomorrow which is likely to disappoint further and in turn pressure base metals.
The overall bias remains on the lower side but we continue to maintain our view that the downside might be limited in the metals largely if China manages to keep the spread of the Coronavirus under check. We recommended considering a buy on dips strategy coupled with strict stop losses.
AVP Commodities Research