Anand Rathi Commodities
The commodities pack continued to bleed last week as the dollar touched a many-month high. Expectations of interest-rate hikes by the Federal Reserve supported the dollar. Gold has lost its safe-haven appeal even during trade wars.
According to the World Gold Council, holdings in global-backed ETFs fell sharply in July. On the other hand, sentiment for base metals continued bearish. The trade war between the US and China escalated.
On the macro-economic data front, China’s CPI and exports improved. Japan’s GDP growth also improved in Q2. Hence, base metals found some support. However, the consistent rise in the dollar contained gains in base metals.
Crude oil prices declined sharply last week due to trade war concerns. China imposed a 25% tariff on US imports of USD 16 billion including diesel, cars, coal and steel products. On an escalation of the trade war demand for crude oil might plunge.
Recently, the US re-imposed sanctions on Iran. But its impact on crude oil is expected to be muted as other countries could cover the supply gap. US president Donald Trump continues to warn countries doing business with Iran. But, Japan is now negotiating with the US for Iranian oil-import exemption. Hence, this shows that the US is not serious in its actions.
The EIA has cut US crude oil production forecast for 2018 to 10.68 million b/d, from its earlier 10.79 million b/d projection. Both, API and EIA crude oil inventories declined last week. But there was no impact on crude oil prices.
Next week will be crucial for the crude oil market. The dollar index is strengthening. According to the latest IEA monthly report, global oil supply rose by 300 thousand b/d to 99.4 million b/d in July. Production is rising in countries such as Saudi Arabia, Russia and Libya. The IEA also said that there are risks to its demand forecast from escalating trade disputes which may lead to slower economic growth. OPEC is scheduled to release its monthly report on Monday.
Recent reports suggest that OPEC crude oil production has increased in July. OPEC and non-OPEC have agreed to raise crude-oil production by one million b/d. As a result, Saudi Arabia has been raising its crude oil production. Markets will focus on the demand and supply projections of OPEC. They will continue to monitor developments in the trade war between the US and China. Overall, the outlook for crude oil is bearish.
Disclaimer: The author is Head – Commodity Research & Advisory at Anand Rathi Commodities. 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.
Source: Money Control