The exponential growth in coronavirus cases in India and elsewhere forced the countries to impose lockdown to curb the pandemic. This led to destruction in oil demand and a massive supply glut. Even as travel curbs sapped the oil demand, producers continued to pump record amounts of oil. Following the historic rout in oil prices last month, Jigar Trivedi, Fundamental Research Analyst – Commodities, Anand Rathi Shares and Stock Brokers, explains why oil prices will not go below zero this month. He further elaborates the performance of other commodities as compared to oil. Here are the excerpts of Jigar Trivedi’s interview with Surbhi Jain of Financial Express Online.
1. After a frantic sell-off by traders last month, do you think oil prices will go negative again this month?
Yes, last month was a historic month for oil markets. The price tanked below zero-mark for the first time in history. Having said this, the market since then has stabilised. OPEC and Saudi Arabia have spoken of extended oil output cuts going ahead. The US too has convinced oil producers to go slow. Most importantly, unlike the last expiry, we are not seeing any unusual movement in oil trading volumes and open interests. Hence in our view, prices will not go below zero.
2. Will reopening of business activities in order to revive the economy battered by coronavirus benefit oil prices?
China has slowly resumed economic activities. Metro trains in France and the UK have started. We believe if economic activity begins even in the slightest way, it might help the oil to recover from current levels.
3. With a surge in gold rates, and upticks in crude oil prices in the last two weeks, how are other commodities faring?
See, gold and crude oil are facing different fundamentals. Still, some are colliding factors. The COVID-19 has pushed the global economy into recession. Cross border trade has halted. Countries are in complete lockdown for more than 30/40/50 days and that’s unprecedented. Hence, the demand for oil has nosedived massively. Storages are overflowing. Oil tankers are floating in the sea. Hence crude oil price fell from a cliff. But going ahead, we believe, crude oil will soon stabilise as historical lows are part of history.
On the other side, all these above-mentioned factors have encouraged traders to park their hard-earned money in safe havens. The world’s largest and most liquid gold ETF is SPDR Gold ETF which has witnessed inflows that have reached the highest since June 2012. Central banks liquidity adrenaline rush, resurface of the trade war, US election year and bad economic data are supporting the yellow metal. Hence we believe going ahead, bullion will continue to rally.
4. What is your near to medium-term outlook for crude oil?
Sentiment will be positive. Crude Oil has recovered smartly in the last week by more than 20%. From the lows below 900, it has fantastically rebounded. Going ahead, although virus vaccination is not yet found, the economic activities have started to some extent in world countries. Hence, we believe demand scenarios will improve and oil will rally further.
5. How do you see crude oil futures after lockdown restrictions are over?
Once the restrictions are over, we believe oil will be in great demand and sometimes will turn bullish. The only critical aspect is the trade war if it escalates then possibly crude may not see levels of $50-$60 soon but undertone will be bullish.