The FOMC meet is likely to affect financial markets including commodities says Aurobinda Prasad, commodities head at Karvy Comtrade, in an interview with Sharleen D'Souza.
The API weekly has noted an unexceptional decline in US crude oil stocks. To what an extent will this news push crude oil prices?
As per the American Petroleum Institute, US Crude oil inventory have declined by 985,000 barrels last week. This is highest draw down in last six weeks, which supported oil to trade above $104/bbl in yesterday's session. Higher draw down of crude oil inventory during this season is expected to support oil prices in a positive trend. If we correlate API inventory figures and current scenario we believe oil prices might stay firm in the near term. At Nymex, oil prices might hit $105 initially and once that is broken it can hit $106/106.50 levels. Likewise, in the Indian market Oil prices might hit Rs 5,600 per barrel.
Mixed data from the US has also been announced this week and renewed debt concerns exist too. What impact will these have on crude?
Given that the US is the largest crude oil consumer, decline in consumer confidence may create concern of lower demand. On the other side, increasing retail sales or manufacturing activities may support oil to trade higher in lieu of rising demand from manufacturing and industrial sector. On the Euro-zone debt front, concerns over Spain have resumed and are weighing on oil prices. However, other than economic factors, oil prices are also driven by fundamental factors. Currently, the oil market is waiting for the DOE inventory data and FOMC meet decision tonight which may see price fluctuations. In the current week, US home sales are expected to improve. Increase in personal consumption may add some points for rising GDP, which may ultimately drive oil higher.
Currently, natural gas has been trading below $2 levels due to higher stocks. How much lower will it go from these levels?
Strong support level is seen at $1.76-1.80. However, we may see some recovery in the short term, and suggest a trading range 1.76-2.40
How will the FOMC meet affect the performance of other asset classes? Also, the US does not plan on additional monetary easing. How will this impact the movement of commodities?
The FOMC meet is likely to affect financial markets, including commodities, as the interest rate decision by the Fed members will be aligned to economic growth. If the monetary easing or Q3 is denied by Fed, it will ultimately have a negative impact on crude oil and base metal prices. Strict monetary policy will lead loans to becoming dearer and this will increase the gap of business growth and demand. So, commodities prices will get bearish impact out of it.