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Outlook for crude oil bullish, but demand concerns persist: Anand Rathi

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Rushabh Maru

Crude oil prices have been rising in the last couple of days since OPEC is committed to re-balancing the crude oil market. A recent update shows that OPEC’s March crude oil production fell to its lowest since February 2015. Saudi Arabia has cut more than it had pledged under the output-cut deal. Venezuela’s crude oil output continued to decline due to US sanctions and a major blackout.

The US plans more sanctions against Iran, which could be announced in coming days. In November last year, the US had permitted eight countries to continue buying crude from Iran. Waivers of such extensions, however, may not be granted now as the US’ goal is to bring Iranian oil exports to zero.

On the other hand, base metals slid this week as a sharp decline in the Euro zone and Germany’s manufacturing PMI data reiterate concerns about a global economic-growth slowdown. The IMF chief warned that the global economy is in delicate equilibrium and has been losing momentum since the start of the year.

However, base metals recovered later as China’s manufacturing PMI showed improvement. This eased concerns about a slowdown in the Chinese economy. Sentiment has improved after the White House economic adviser, Larry Kudlow, expressed optimism about a trade deal between the US and China. Copper rose on concerns about supply disruption after an indigenous community in Peru refused to negotiate with the government.

The outlook for crude oil is bullish. OPEC is fully committed to rebalancing the market. It has hinted that the production cut would be extended till end-2019. Russia, the world?s second-largest producer of crude oil, is on track to reach its pledged output cut of 228,000 b/d by end-April.

So far, it has made good progress. US president Donald Trump continued to ask for greater production by OPEC to curb prices. However, it seems unlikely that OPEC would comply. The Baker Hughes rig count is sharply declining. For the week ending 29th March, it fell to 1,006, from a multi-month high of 1,083. There is much optimism regarding the trade deal between the US and China.

The US continued to maintain a hard stance on Iran. It plans to impose additional sanctions on that country. The tense situation in Venezuela persists. Nevertheless, concerns about global economic growth may contain gains in crude-oil prices.

(The author is Research Analyst – Currency and Commodity, Anand Rathi Shares and Stock Brokers.)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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