Commodity Fall A Blip, Crude To Trade Near $60 By Year-End: ANZ Research

Crude Oil Pipelines (Photographer: Luke Sharrett/Bloomberg)

Written by
Jayesh Khilnani
Written by

Jayesh Khilnani

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Crude oil prices have fallen by more than a fifth since their highs this year as a higher shale output in the U.S. offset production cuts by the Organization of Petroleum Exporting Countries. Other commodities, too, have declined, led by base metals.

Indian companies have tracked the fall. Shares of oil consumers like airlines rose while resources and metal producers are trading at a loss this week.

Overnight, the U.S. benchmark WTI crude oil fell to close at $45.52 per barrel. The index fell below $45 for the first time since OPEC announced cuts as Asian markets opened on Friday.

This is, however, a blip and crude is expected to trade near $60 a barrel by the end of the this year, Daniel Hynes, senior commodity strategist at ANZ Research, Australia, told BloombergQuint over the phone. Commodities will also resume its rally as the market is fundamentally strong, he said.

Edited excerpts from the interview.

What is your outlook on oil prices given therecent decline?

From a fundamental point of view, oil still looks promising.The extent of rebalancing we expected in 2017 took longer than expected but itseems to be on track for a significant deficit in the second half of this year.All indications point towards a growth in demand and hence the positiveoutlook. We expect oil to trade near $60 per barrel towards the end of thisyear.

What is your expectation from the OPEC meet scheduled later this month?

Our base case is that OPEC would extend the production cutagreement for the remainder of 2017. The key question, however, would be for how muchlonger?

Base metals too have seen a decline of 10-20 percent from the highs of 2017. What is your outlook on those?

Metal prices have certainly come under pressure.We still see an underlying threat to supply in the copper market, which is susceptibleto further strike action in Chile, and also other markets like Zinc and Nickelwhere the risk of further disruptions is high.

Is the commodity rally over or is it expected to continue from the current breather?

We view the current sell-off as a small blip andexpect the rally to resume soon. The market still looks fundamentally strongand should keep upward pressure on prices, going forward.

Airlines Gain, Metals Firms Fall

The NSE Metals index has declined more than 3 percent during the week. Falling commodity prices have a negative impact on metals and resources companies while help the ones that consume them.

Stocks of materials companies have declined 5-10 percent each in the week so far while aviation companies have gained up to 11 percent.