Commodity Analysis

Crude Oil

Oil prices rose on 21 November, buoyed by a potential breakthrough in the Sino-US trade war and OPEC-led efforts to constrain supply, although trading was quiet as many markets were in holiday mode. US President Donald Trump said on 19 November he and Chinese President Xi Jinping will have a signing ceremony for the so-called Phase 1 agreement to end their trade dispute that was put together earlier this month. The roughly 17-month trade war hit global economic growth and demand for oil, leaving prices range-bound for most of the year.

Meanwhile The lingering ripple effect of the trade row, however, showed up in data from Japan, the world’s third-biggest economy, on 20th as industrial output shrank for a second month in November U.S. consumers are “showing few signs of tightening their purse strings, which is positive for oil also. The so-called OPEC+ grouping agreed in November to extend and deepen production cuts that would take as much as 2.1 million barrels per day (bpd) of supply off the market, or roughly 2% of global demand. US producers, not party to the OPEC+ agreement, have been pumping record amounts of oil, especially shale crude, to fill any supply gaps. Growth in production in the US is forecast by many to slow, however. Still, more supply is coming in the new year with Saudi Arabia and Kuwait earlier this week agreeing to end a dispute over their Neutral Zone, which can supply as much as 500,000 barrels per day of oil, or about 0.5% of global demand

Gold

Gold prices inched up on 30 December, holding below a near two-month peak hit in the previous session, as investors hedged against risks in thin year-end trading after U.S. military strikes in the Middle East. Gold prices have risen about 18% this year, mainly due to the 17-month-long Sino-U.S. tariff war and its impact on global economic growth. Investors also kept a close eye on developments regarding a trade agreement between Washington and Beijing after Trump last week said there would be a signing ceremony for the first phase of the deal. Indicative of investor sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.1% to 893.25 tonnes on 27 December from 892.37 tonnes on the previous day. Gold prices flipped to a premium last week in India due to limited supplies even as demand remained subdued, while other Asian regions barely saw any holiday purchasing.

Dollar

Rupee may lose at least 3 percent in 2020, possibly setting a new record for lows, as a perfect cocktail of global headwinds and domestic fiscal troubles (mainly due to tax rate cuts) make global investors wary of buying Indian securities, a survey of 20 market experts by ET showed. Companies may also have to face a higher cost of funds as the benchmark bond yield, a key gauge, maybe heading north by at least 25 basis points amid fiscal worries. A basis point is 0.01 percentage point. Traders expect a slippage in the fiscal deficit target next financial year would lead to higher market borrowings by the government. RBI has revised its projection for retail inflation upwards to 5.1-4.7 percent in the first half the current financial year and 4.0-3.8 percent in the second half, with risks broadly balanced. The RBI conducted a tiny version of “Operation Twist” two weeks ago, which brought down elevated bond yields.

— Avichal Agrawal