WTI Crude Oil prices recovered sharply with near month futures trading at $28.05/bbl, up 8.41% whereas Brent rallied to $30.62/bbl, up 7.55% after Russia hinted at talks with the OPEC on production cuts.
The last meeting between OPEC countries and Russia was an attempt to increase production cuts to support the loss of demand from the Coronavirus outbreak but the cartel instead decided to scrap the existing production cuts beyond March 2020. The resulting fallout saw oil prices tank over 60% in the last 2 weeks pushing prices to its lowest level in 18 years. Oil prices have been trending higher since last evening after Trump indicated that the US may intervene in the standoff between Russia and OPEC which was followed by comments from Russia that they may be open to discussions with the OPEC but albeit on their terms which was for sticking to the current production cut levels and not increase it. While it is too early to comment on the potential talks, the supportive sentiment along with a round of short covering may push oil prices significantly higher next week.
We maintain a cautiously bullish approach on prices and expect WTI prices to test $32.00/bbl and possibly $38.00/bbl next week. The overall picture continues to remain bearish due to weakening fundamentals and a breakdown below $26.00/bbl could trigger a fresh round of selling in oil prices.
Metals across the board rallied driven by short covering and improved cues from global markets. Gold futures are trading at $1507.90/oz, up 1.92% whereas Silver is trading at $12.91/oz, up 6.46% currently. Domestic prices are also trading higher with Gold at Rs.40720.0, up 2.21% and Silver at Rs.36720.0, up 4.61% as the time of writing this. While it’s too early to comment on a potential bottom in prices, stabilizing financial markets and the increasing chances of a recession has been calming nerves and bringing back safe haven appeal for Gold prices. With global economics shutting down and amid mass layoffs, increasing unemployment will be another key to pushing prices higher in the near term. We expect Gold prices to reach $1530.0-$1550.0/oz next week whereas on the downside, a break below $1500.0/oz will see short selling emerge in the coming days.
Base Metals are trading higher today after early reports from China indicate that the virus spread maybe in control and the government may unleash massive stimulus programs to support the ailing economy. With the exception of Aluminum which is down 0.37%, the rest of the metals are trading higher by about 2-3% since opening today. Copper futures are trading at $4907.50, up 2.06% currently whereas Nickel is trading at 11587.50, up 280.0 or 3.61% since last close. The short term bias remains bearish on base metals but we expect prices to consolidate further as majority of the supply goes offline due to the shutdown on mines and projects across the world which would eventually lead to a recovery in prices in the short term.
AVP Commodities Research