The Economic Times daily newspaper is available online now.

    Logistics chain, not dollar index, influencing oil price: David Lennox, Fat Prophets

    Synopsis

    “With Iran sanctions, 2 million barrels of oil will go out of the supply chain.”

    david Lennox, Fat Prophets
    If the US dollar climbs, base and precious metal prices may fall. But crude prices are likely to remain immune, David Lennox, Resource Analyst, Fat Prophets, told ET Now.

    Edited excerpts:

    What explains this rebound coming in crude prices? Brent is already at $79 plus levels and who knows we will be back to $80 soon?

    Certainly. If we look at Brent, we are now drawing close to the point in time when we will see Iran go under sanctions and when that happens. the markets will see something like 2 million barrels of oil coming out of the supply chain.

    Unlock Leadership Excellence with a Range of CXO Courses

    Offering CollegeCourseWebsite
    Indian School of BusinessISB Chief Technology OfficerVisit
    Indian School of BusinessISB Chief Digital OfficerVisit
    IIM LucknowIIML Chief Operations Officer ProgrammeVisit
    If that is the case, like over the last few trading periods, we can expect oil price to rise. However, on the demand side, we are seeing some weakness in the US with gasoline demand dropping below 2017 demand at somewhere around 10.2 million barrels compared to 10.6 million barrels last year. That is certainly keeping pressure on the rallies from being sustainable though overall, one would have to suggest that the markets are watching very closely for any supply disruptions. When we see those disruptions or forecasts of disruptions, Brent prices rally accordingly.

    There is a trade war in the world and demand could get impacted and economies could remain under stress. That explains why commodity prices have come down of late but crude is singing a different tune. For crude, people are not focussing on demand, everybody is focussing on supply. If the world slows down, will that have an impact on demand also?

    Certainly yes. In 2017, China imported about 8.4 million barrels of oil per day and the US imported 7.9 million per day. In case of a trade war, we would see impact on growth towards the end of 2019. However, in the nearer term, we are expecting demand to remain relatively stable for both those countries. Then there is India which at the moment imports about 4.4 million barrels. We are expecting demand to surge as the country continues to enjoy a considerable growth spurt.

    Historically, we have seen how crude oil prices have gone up but dollar value or dollar index has not shown much of strength. This time, it seems to be slightly different. How are you reading the strength both in commodities as well as crude oil price and the dollar index? What would be the implications on the global economy at large?

    The dollar index has been rising generally throughout the course of 2018 and it has had very little impact on the oil price. The oil price fluctuation has a fair bit to do with the logistics chain of oil. It goes from ground to consumer in a very quick time and that does not allow the currency impacts to have any major effect. Overall, if the US dollar climbs, we would expect to see commodity prices in terms of base and precious metals falling, but we do expect to see the crude prices remain immune from that impact.




    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in