OPEC and its output cap, the never ending story: Angel Commodities Broking

Views by Mr. Prathamesh Mallya (Chief Analyst- Non-Agri Commodities & Currencies, Angel Commodities Broking):

"Commodities had a roller coaster ride last month with most of the metals like Nickel, Aluminium, Zinc and Silver falling by around 10%, 5.5%, 3.3% and 2% respectively, while energy pack had a good run-up with gains of around 6 percent in Crude oil and 5 percent in Natural Gas.

The fall in commodities market is purely on account of upbeat sentiments in global equities run-up in November would be a 13th consecutive monthly gain.

In the energy markets, crude and natural gas were the favourite of investors as the uncertainty with regards to the OPEC continuing its cap in oil output cut was the theme for most of the past month. At-last, OPEC and non-OPEC producers led by Russia agreed to extend output cuts until the end of 2018, while also signaling a possible early exit from the deal if the market overheats. The surprising factor is that Nigeria and Libya would be included in the oil output deal and Nigeria will cap its oil output at 1.8 million barrels a day.

However, the efforts of the OPEC nation to stabilize global oil markets and inventories are acting as a boon for US oil producers. They continue to increase the oil production with a record production of 9.68 million barrels per day versus 8.5 mbpd last year, just before the cuts were implemented by the OPEC.

Going forward, if the producers in the US increase their rig count to take the benefit of higher prices, then another collapse in oil prices would be around the corner in the first quarter of 2018 itself.

All said, WTI oil prices will see near term correction towards $56 while the trend remains strong in the counter with the onset of winter in the US, the incremental demand will result in stronger oil prices from a month perspective. MCX oil prices will also witness some correction towards Rs.3650 which can be used as price points to accumulate."

Source : Equity Bulls

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