(MENAFN- Gulf Times) The Opec meeting on December 4 will gain "additional importance" with prices approaching the "financial crisis low in 2008", according to a senior banker.
Crude oil, both Brent and WTI, has returned to the lows of the year as the intense focus on oversupply continued to pressure the market, points out Ole Hansen, head (Commodity strategy) at Saxo Bank.
US stockpiles expanded for an eighth week and that helped maintain a stockpile more than 100mn barrels above the five-year average, he said in a note here.
"Lack of signs of production cutbacks, not least from non-Opec producers, will help create a very nervous environment ahead of the first quarter of 2016. During this quarter, which tends to be a period where inventories rise the market will also have to deal with increased supplies from Iran, and the potential for a stronger dollar in the aftermath of a US rate hike," Hansen said.
"While the short-term outlook for oil remains challenging, we maintain the view that the current price level is low enough to eventually trigger a further reduction in non-Opec production, not least from US shale oil producers. Only then will Opec be able to make an announcement on production cut backs which should further help the price stabilise and eventually move higher in the second half of 2016," the Saxo Bank executive said.
He said oversupply in the oil market continued to be a concern, not least considering the uncertainty about when the adjustment process kicks off in earnest.
While the oil market can take comfort from the fact that demand is rising, the same cannot be said about industrial metals. This sector is suffering from the combination of oversupply and slowing demand, not least from China where the process of moving away from an investment and export driven economy towards a consumer driven economy has taken its toll on raw materials such as copper, steel and iron ore.
On dollar, Hansen said the December outlook to a rate hike in the US and more quantitative easing in Europe should help the greenback make additional gains. The stronger dollar maintains a stranglehold on gold and the periods of gold weakness are also the periods where the dollar has been rising.
"Much therefore depend on investors attitude to the greenback in the aftermath of a near certain rate hike on December 16. The future speed of additional rate hikes will play a big part in the attractiveness of the dollar and to what extend this will create some additional headwind to precious metals.
"With just under four weeks to go before the Federal Open Market Committee meeting, we see limited upside to precious metals during this time. The market will be headline-driven and barring any major geopolitical event, these headlines should mostly be gold negative considering the intense focus on the rate hike," the Saxo Bank executive said.
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