Oil prices may rise to govt’s comfort limit; volatility may remain high in first half of 2020

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Updated: January 21, 2020 4:42:26 PM

The oil prices are expected to remain highly volatile in the first half of 2020, largely in the band of $60-70 per bbl, a report said.

oil, oil pricesThe crude oil futures on Tuesday fell by Rs 32 to Rs 4,150 per barrel after participants reduced positions tracking a subdued demand at the spot market.

The oil prices are expected to remain highly volatile in the first half of 2020, largely in the band of $60-70 per bbl, a report said. The volatility is expected to be driven by higher demand for low sulphur crude as a result of IMO regulations on the usage of marine fuel coming into effect from January 1, 2020, Kotak’s Annual Outlook 2020 said. The Brent crude is likely to be largely in the band of $60-70/bbl, the report said, adding that in the first 1-2 quarters it may be closer to the higher end of the band. “There is likely to be a wider gap between light and heavy crude oil,” the report noted. Former finance secretary Subhash Chandra Garg recently said that oil at $70 per barrel is the comfort level for the government.

The oil demand may face downward risk owing to the global GDP while re-emergence of geopolitical risks and rhetoric ahead of the US Presidential elections can bring in volatility in the oil market, the report also said. “OPEC, in its Dec 2019 meeting, decided to deepen its production cut by 0.5 mn bdp but only upto Mar 2020. OPEC’s action on production – whether it gets extended timeline beyond Mar 2020 or gets rolled back partially, will be a key event to watch out for which will have a bearing on the oil price for second half of the year,” Kotak report also said.

The crude oil futures on Tuesday fell by Rs 32 to Rs 4,150 per barrel after participants reduced positions tracking a subdued demand at the spot market. On the Multi Commodity Exchange, crude oil for February delivery dropped by Rs 32, or 0.74 per cent, to Rs 4,150 per barrel with a business volume of 24,027 lots. Crude oil for March delivery was quoting lower by Rs 30, or 0.72 per cent, at Rs 4,157 per barrel with an open interest of 586 lots. Globally, West Texas Intermediate crude oil traded 0.58 per cent lower at $58.20 per barrel.

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