Copper: Global trade worries mount, copper to test Rs 430 support again

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Crude oil

prices were very volatile within a range, as concerns about rising supply from the US and elsewhere threatened to undermine efforts by

Opec

and other producers to tighten the market.

Several reports last week renewed investor focus on potential for rising supply to overwhelm the expected gains in crude demand for 2018. US crude inventories climbed for second consecutive week amid weakening oil demand as well as refinery utilisation rates and improving shale output.

The risk-off move in stocks and reversal higher in dollar could be pressurising oil markets. News of Libya said loadings of crude at a key port had been suspended, offsetting an earlier dent to the price caused by evidence of the inexorable growth in US oil output supported prices.

Data from Baker Hughes showed that the number of drilling rigs operating in the US rose by four last week, bringing the total count to 800. It was the seventh increase in the rig count in eight weeks.

Fundamentals are weak, but buyers were able to overcome these negative effects with a powerful performance, fuelled by a robust US jobs report, which suggested a strong economy and a better outlook for demand.

Oil has been trading in a tight range this month, with WTI prices hovering around $60 a barrel as rising US output continues to stoke fears that a shale boom will limit price increases. Meanwhile, the Opec and allied producers are continuing production cuts in an effort to drain a global glut and help prop up prices.

International Energy Agency (IEA) reported global oil supply increased in February by 700,000 barrels a day from a year ago to 97.9 million barrels a day. Supply by non-Opec producers, led by the US, would grow by 1.8-million barrels a day this year versus an increase of 760,000 barrels a day last year. The supply increase is more than expected demand growth forecast for this year of 1.5 million barrels a day. The agency also reported that commercial oil inventories in industrialised nations rose in January for the first time in seven months. That directly undermines the efforts of producers led by Opec and Russia, to cut supply in order to reduce global stockpiles.

Data from the US showed crude stocks rose by five million barrels, the biggest jump since late January compared with expectations had been for two million barrel build. But there was a larger than expected draw on fuel stocks. Production also raised, with the US output hitting 10.38 million barrels a day, a new weekly record; all-time daily output measured on a monthly basis broke a 47-year record in November. The sharp fall in products inventories comes even as refineries ratcheted up activity in what is typically season when refiners start to do maintenance.

Gasoline stocks fell by 6.3 million barrels compared with expectations for a 1.2 million-barrel drop. Gasoline demand hit its highest level since August 2017. Distillate stockpiles fell by 4.4 million barrels, versus expectations for a 1.5 million-barrel drop. Refinery crude runs rose by 432,000 barrels per day, EIA data showed. Refinery utilisation rates rose by 2 percentage points. Net US crude imports fell last week by 407,000 barrels per day. Crude stocks at the Cushing, Oklahoma, and delivery hub rose by 338,000 barrels. That’s the first increase in stocks at the storage hub in 12 weeks, but overall inventory levels remain low at that location.

Opec in its monthly reported that producers outside of the cartel, mainly the US, would boost supply by 1.66 million bpd in 2018, marking the fourth upward revision from 870,000 bpd forecast in November. Opec output dropped by 77,000 bpd to 32.186 million bpd in January, as the UAE pumped less and Venezuela continued its collapse.

Oil drilling activity ticked up across much of the country this week with multiple rigs added in Texas, Oklahoma and North Dakota. The total amount of rigs drilling for oil increased by four up to an even 800, while the overall rig count grew by six up to 990. Oklahoma added four rigs, while North Dakota grew by three and Texas tacked on two more. Alaska, Colorado and Pennsylvania each lost two rigs.

Economic crisis in Venezuela resulted in pushing its output to the lowest since the 1940s; the market could tip from a glut into a shortage. Opec is collectively cutting supply by almost 50 per cent more than it intended. Meanwhile, IEA raised its estimate for global oil demand growth by 90,000 barrels a day to 1.5 million day in 2018 as a stronger outlook for developed economies offsets weakening expectations for emerging nations. Steady growth was also reflected in the API latest report showing US oil consumption rose to the highest in 11 years even as crude production hit a new monthly record which kept pressure on crude oil prices.

Oil prices got some support after Libya announced the loadings of crude at a key port had been suspended, offsetting an earlier dent to the price caused by evidence of the inexorable growth in US oil output. All loadings at the Libyan port of Zawiya, which exports crude from the 308,000-barrel per day El Sharara field, have stopped due to a strike. On geopolitical front, Remarks by Saudi Arabia‘s Crown Prince Mohammed bin Salman added to geopolitical tensions after he warned that his country would seek to develop a nuclear bomb if Iran did.

Dollar remained stable as weekly jobless benefits claims eased while CPI rose 0.2 per cent in Feb, in line with expectations and likely alleviating concerns that inflation is about to accelerate. Investors are watching the inflation numbers closely for clues on how quickly the Federal Reserve will raise interest rates this year. Markets currently agree with Fed projections for three hikes, though a more aggressive inflation move could trigger additional increases.

For natural gas, prices fell following an EIA storage reported that natural gas storage in the US fell by 93 billion cubic feet in the week ended March 9 compared with expectations of a decline of 96 billion. Total US natural gas storage stood at 1.532 trillion cubic feet, 31.9 per cent lower than levels at this time year ago and also 16.2 per cent below the five-year average for this time of year.

Iran has nearly doubled gas production at South Pars, the world’s largest gas field, in the past year. Gas production at South Pars increased from 285 million cubic meters to 555 million cubic meters in the past Iranian calendar year, which started in late March 2017 which will put pressure on natural gas prices.

In the week ahead, investors will watch data on US stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer and how fast output levels will continue to rise. Oil traders will also focus on weekly reports from API for US oil supplies and report from EIA for data on oil and gasoline stockpiles.

Most of all, traders will be watching US consumer inflation data because this will influence next week’s new Fed economic projections.

Technically, short-term bias looks rangebound in Rs 3,970-4150 and a break below the same looks negative and the current decline could extend towards Rs 3,800-3,740 zones.

(Navneet Damani is AVP Research at Motilal Oswal Commodities. Views expressed in this article are author’s own and do not represent those of ETMarkets.com)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)


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