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Informist, Tuesday, Jan. 28, 2025

 

By Taniva Singha Roy and Sandeep Sinha

 

--Sharekhan's Singh: See crude oil price touching $85/bbl in a month or two

--CONTEXT: Sharekhan senior analyst Praveen Singh's comments in an interview

--Sharekhan's Singh: WTI may fall to $70/bbl if OPEC rolls back output cuts

--Sharekhan's Singh: See gold hitting $3000/ounce or higher in 2025

--Sharekhan's Singh: See copper falling to $8,300-8,500/tonne in 3-4 months

--Sharekhan's Singh: See zinc falling to $2,500/tonne in 3-4 months

 

MUMBAI – Crude oil prices could reach $85 in a month or two due to supporting factors such as the possibility of more US sanctions on the Russian energy sector and Iranian oil exports and fiscal stimulus in China, according to Praveen Singh, associate vice-president, fundamental currencies and commodities, Mirae Asset Sharekhan. If these factors come into play, there is a possibility of the crude oil market slipping into deficit, Singh told Informist in an Interview.

 

If there are more sanctions or if Russia's oil infrastructure is targeted, then there is a possibility that their oil exports could come down by 500,000 barrels or even 1 million barrels per day, Singh said. Crude oil prices rose sharply in the last one and a half months after staying in the $65-75 a barrel range for a long time with prices rising by 14-15% in the last few weeks. In the near term, the market is concerned about the impact of tariff plans by US President Donald Trump, what the Chinese economy is going to do, what will happen to the dollar, and what the global economic outlook looks like, he said.

 

Also, supporting crude oil prices is the announcement by Trump to fill up the strategic petroleum reserves, a colder-than-usual winter in the US and cold weather in Europe. These factors are leading to an increase in demand for heating oil such as kerosene and diesel, which is pushing up the prices of natural gas and is positive for crude oil. Falling crude oil inventories are also supporting prices, he said. Filling the US strategic petroleum reserve would involve buying nearly 300-310 million barrels of crude ... "That's a huge quantity and supportive for oil prices."

 

The sanctions slapped by the Biden administration on the Russian oil industry have led to Russian supplies falling to a 15-month low and sanctions on Iran are leading to supply concerns. "I do not think that this geopolitical problem of the Russia-Ukraine war is going to be resolved anytime soon. Because (Russian President 

Vladimir) Putin is going to stick to his conditions," he said. Russia might stick to their terms of keeping the territories they have won in the war, and it could be a very sticky issue for both Russia and the US, Singh said.

 

The People's Bank of China has said that they will follow a slightly looser monetary policy. Apart from that, China is going to come out with more fiscal spending, which will support oil demand, Singh said.

 

On Indian crude oil imports amid the sanctions on Russia's energy sector, Singh said New Delhi will now buy crude from West Asia and the cost advantages that it was getting will not be there, so it will be negative not only for India but also for Europe because a part of the oil was being rerouted to Europe. However, that also will be a positive factor for oil prices, he said.

 

Singh said that oil prices could fall if the Organization of the Petroleum Exporting Countries unwinds its production cuts as they have huge spare capacity. "They (OPEC) know that if oil prices rise beyond a limit, it will hurt the global economy as it is not very strong." OPEC would like to release only a part of their spare capacity, which may restrict the downside in oil prices, Singh said.

 

The cartel will roll back the cuts only when they think the global economy is strong enough. The Chinese economy is strong enough so that whatever extra oil is being released could be absorbed. If they unwind the cuts, WTI could make a bottom at $70 per barrel, he said. 

 

PRECIOUS METALS

The unsustainability of global debt is the key reason for the rise in gold prices. Global debt has neared $315 trillion, which is 3.3 times the global GDP. The deficit-driven growth model is being questioned, bond vigilantes are active, and gold prices have disconnected from yields, Singh said.

 

"Previously, whenever bond yields used to go up, gold used to go down... that correlation has weakened because now investors are worried about the sustainability of the debt levels, as we have just seen what has happened in the UK, the 30-year yield has reached the highest level since 1998. Due to concerns about high borrowing, the British pound fell to more than a year low despite higher yields," he said.

 

Secondly, the central banks are the biggest buyers of gold and that has a huge influence on prices. Markets are looking at de-dollarisation because many central banks want to reduce their dependence on the US dollar. There is a diversification motive also there for central banks, he said.

 

Geopolitical factors such as the Russia-Ukraine war, the US-China trade tiff and the China-Taiwan standoff are also likely to support the yellow metal's safe-haven demand. There is also uncertainty about the effectiveness of the ceasefire in West Asia and how long it will last. Despite stimulus measures, concerns about a weakening Chinese economy are also supporting gold prices. Nearly 20% of China's GDP is dependent on the property sector, which is very weak, Singh said. 

 

However, from a very short-term perspective, there could be some correction in gold prices as the dollar Index is likely to rise. "Any fall towards $2,500-$2,600 an ounce is a good buying opportunity. The risk-reward ratio makes sense to go long on gold," he said. In the extreme case, bullion prices can fall towards $2,300 an ounce, where they have very strong support. Singh is positive and sees gold prices hitting $3,000 an ounce or even higher this year.

 

On silver, Singh said it is currently lagging behind gold, with the gold-silver ratio at 90. Last year the ratio fell to as low as 72. Silver is seen outperforming gold in the second half of the year as the focus comes back on the strength of the US economy and the labour market when the US Federal Reserve is likely to change its stance from hawkish to maybe a bit more accommodating. If that happens, there will probably be more than two rate cuts, so these factors will propel silver prices much higher, Singh said.

 

INDUSTRIAL METALS

Mirae Asset Sharekhan is slightly bearish on industrial metals for the next three to four months. Copper, being the bellwether metal for the global economy, could be hit the most, Singh said. The brokerage is also bearish on zinc. Despite weak demand, the metal did very well last year, rising 12?cause of production cuts in zinc smelters. Overall, last year zinc was in a slight deficit of about 30,000 tonnes. But now some of the supply concerns are easing and if the property market remains weak, zinc prices are also likely to fall, Singh said.

 

Copper, which is currently around $9,100 per tonne, may fall to $8,500 or $8,300 per tonne. Similarly, zinc, which is around $2,850, may decline to $2,500 per tonne, according to Singh.  The decline can be attributed to the slowing global economic growth. "If Trump imposes tariffs of 10% on China, 0.9-1% of the country's GDP could be impacted. Moreover, the European economy is struggling, the German economy has contracted for two years in a row," he added.

 

Aluminium will also fall but will do better than copper and zinc. China has rolled back its export tax limit, which means that Chinese aluminium exports would be impacted. Although domestic aluminium prices might fall more than London Metal Exchange prices, the overall aluminium prices are likely to hold better than zinc and copper prices, Singh said.  End

 

US$1 = INR 86.52

 

Edited by Saji George Titus

 

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