JOIN USCrude outlook dim amid coronavirus outbreak but central banks' rate cut tsunami to fire up gold
China’s improved manufacturing PMI in March and talks between US and Russian Presidents to work towards stabilizing oil markets helped Brent crude prices to recover some ground on Tuesday but analysts said crude oil could plunge as low as $10 per barrel if the situation arising out of coronavirus worsens going forward.
But an unexpected slowdown in the corona-hit global economy presents a perfect environment for gold prices to explode in 2020. With the central banks, the world over releasing a tsunami of rate cuts gold could again see record-high prices. Though it has not quite behaved like a safe haven despite the carnage in financial markets of late, analysts said the ocean of new liquidity sloshing the markets leading to a fall in government bond yields, gold could soon become attractive.
China, the world’s second-largest oil importer showed an unexpected expansion in March manufacturing PMI to 52.0 from 35.7 in February amid the country’s fight with coronavirus. Financial markets reacted positively to the news, with Asian stock and crude rising as investors seemed relieved by the rare good news at the time of the pandemic.
Brent crude almost touched $23 per barrel on Tuesday after closing at $22.76 on Monday, its lowest since November 2002.
With most of the world under lockdown, the demand for crude is at its lowest in decades and an oversupply from Saudi Arabia is turning out to be far more than the world’s oil storage capacity.
According to IHS Markit consulting services, prices of Brent could fall to $10 per barrel in April, with some producers experiencing negative prices and willing to pay their buyers for lifting crude.
India, which is currently under a 21-day lockdown, imports around 80% of its oil requirements, may benefit under such circumstances in the long run. But currently, its demand is also likely to contract in April and only jet fuel demand could immediately pick up after the lockdown is lifted, according to oil analysts.
A Barclays report too had forecast that Brent crude could fall upto $15 per barrel in the short term.
However, gold, the haven asset, will stage a comeback as the liquidity gush from the central banks would ensure investors do not have to worry about funding constraints.
Following global cues, gold prices in India edged lower on Tuesday On MCX, gold futures for June were down 0.35% to Rs 43,232 per 10 gram. This was the third consecutive day of decline in gold prices.