Commodities

Crude oil prices may remain range-bound around $60

G Chandrashekhar | Updated on September 30, 2019 Published on September 30, 2019

Crude oil prices have receded from their recent highs – post-drone attack on Saudi Arabian oil facilities – thanks to the announcement that the damage has been repaired and supplies are gradually accelerating to pre-attack levels. September 30 is the date by which Saudi said it expected the situation to normalise, although there are sceptics who want more concrete evidence.

Concerns over tightening supplies have surely diminished for now. If indeed Saudi’s claim of supply normalisation is true, then there is no justification for a large risk premium on crude oil prices. Additionally, President Trump’s rants against Iran have not become any more aggressive than before, which suggests there may be no threat of further reduction in the already low Iran oil export.

Coinciding with this was the easing of tensions when Saudi Arabia declared a partial ceasefire in Yemen. Brent closed last week at $ 62 a barrel.

US-China trade talks

In another coincidence, the US and China are set to resume trade talks early October, although, again, there are skeptics who are unwilling to buy token goodwill gestures and want to see concrete outcomes.

While the resumption of talks between the world’s top two economies would help boost the sentiment, global growth concerns are seen coming to the fore to weigh on prices. This was fuelled by the statement from the International Energy Agency’s Executive Director that global demand forecast for 2020 may be revised downward due to slowing Chinese growth and continuing uncertainty on the trade front.

All eyes are trained on the US where changes in commercial crude stocks will garner close attention. The big question seems to be not if, but when the US economy would begin to slow. Slower employment growth can potentially weigh on energy consumption demand and thereby on stocks.

Sanctions on Chinese firms

As an aside, reports suggest that tanker rates for shipments from West Asia to other Asian countries have escalated sharply. This follows the US sanctions on a number of Chinese companies that, the US claims, have violated Iran sanctions. These companies are alleged to have defied the US sanctions on Iran and moved Iranian oil. Sanctions on large tanker operators have resulted in a scramble for bottoms. This in turn has the potential to disrupt supplies.

All these suggest that the global crude oil market is not anywhere close to the ‘business as usual’ situation. Although, on current reckoning, considering the demand and supply side factors, the risk of price change is to the downside, New Delhi cannot remain complacent hoping the crude market would continue to fall. We have to expect the unexpected.

Without any further market disrupting developments, Brent crude may average $60 a barrel in the last quarter of 2019, and one can expect range-bound trading between $58 and 62 a barrel.

The author is a policy commentator and commodities market specialist. Views are personal

Published on September 30, 2019
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