Oil

IN the Singapore market, Brent futures slipped below $109 a barrel on October 3, after posting their biggest gain in two weeks in the previous session, on worries that a prolonged US government shutdown would hurt demand in the world’s biggest oil consumer. Oil was also under pressure from a surprise surge in US crude stock piles.

US oil also fell on October 3 in the New York market, despite some positive economic data from China and the threat of a storm brewing in the oil-rich Gulf of Mexico.

The US budget crisis has closed federal agencies, cut into programmes, and sent around 800,000 government workers home without pay.

The US is overtaking Russia as the world’s largest producer of oil and natural gas — a startling shift that is reshaping markets and eroding the clout of the traditional energy-rich nations. US energy output has been surging in recent years, fueled by shale-rock formations of oil and natural gas.

The US produced the equivalent of about 22 million barrels a day of oil, natural gas and related fuels in July, according to figures from the US Energy Information Agency (EIA) and the International Energy Agency (IEA). US imports of natural gas and crude oil have fallen 32 per cent and 15 per cent respectively in the past five years, helping to narrow down the US trade deficit.

And since the US is such a big consumer of energy, the shift to producing more of its own oil and gas has left substantial fuel supplies available for other buyers.

The US last year tapped more natural gas than Russia for the first time since 1982, according to data from the International Energy Agency. Russia’s exports have been crimped by rising competition and the economic slump in Europe.

According to one forecast, Russian oil exports could fall 25 per cent to 30 per cent after 2015, reducing its GDP by more than $100 billion. Russia is believed to have one of the world’s largest untapped oil-bearing shale formations.

But Saudi Arabia remains the world’s largest supplier of crude oil and related liquids. As of July, the kingdom was pumping 11.7 million barrels a day, according to the IEA. Russia came in second, at 10.8 million barrels, followed by the US, at 10.3 million. Each of the three pumps more than twice the daily output of such major producers as Canada, Venezuela and Nigeria.

Gold

THE bullion traded near two-month lows on October 2 in the Singapore market, as the first US government shutdown in 17 years kept investors on edge, stoking worries of further liquidation after a sharp three per cent drop in the previous session.

Gold had posted its biggest daily percentage drop in more than two weeks a day earlier, following a massive Comex sell order and technical selling that took place once prices had fallen below $1,300 an ounce. For the year, gold has shed about 23 per cent of its value, largely on fears over a US monetary stimulus cutback.

Increased central bank liquidity and a low interest rates environment encourage investors to put money into non-interest-bearing assets such as gold.

Spot gold prices had touched a record $1920.94 a troy ounce in September 2011, after Standard & Poor’s had cut the US credit rating following months of debate over the raising of the country’s debt ceiling.

Gold’s safe-haven appeal is usually burnished by uncertain economy and geopolitical tensions. Prolonged politicking around the ongoing US budget crisis had initially prompted hopes that gold prices could rise, but safe-haven bids failed to emerge.

Traders are now closely watching the US situation for more trading cues. A standoff between President Barack Obama and Republican lawmakers forced the US government to begin a partial shutdown on October 2. And now, an even bigger battle looms as Congress must raise the debt limit in coming weeks or risk a default that could roil global markets.

A week-long shutdown would slow US economic growth by about 0.3 percentage points, according to Goldman Sachs, but a longer disruption could weigh on the economy more heavily as furloughed workers scale back personal spending.

Some gold traders said the possible impact on the economy and more political drama around raising the US debt ceiling could prompt the Federal Reserve to delay the tapering of its monetary stimulus, thus turning sentiment towards gold more positive.

But a lot also hinges on seasonal physical demand in China and India towards the end of the year. So far, demand has been muted, dealers said.

In the London market, gold fell on October 3, as investors booked profits after the previous session’s gains due to uncertainty about a partial US government shutdown and slow demand in key physical markets. Spot gold was down 0.2 per cent to $1,312.10 an ounce. US gold futures for December were down $8 an ounce at $1,313.20.

The SPDR Gold Trust — the world’s largest gold-backed exchange-traded fund (ETF) and a good indicator of investor sentiment — said its holdings fell by 4.2 tonnes to 901.79 tonnes on October 02, the biggest fall in nearly three weeks.

Copper

COPPER hit a one-week low on October 2 in the London market, as worries about the wider impact of the first US government shutdown in 17 years cut risk appetite, with a weaker dollar limiting losses.

Benchmark three-month copper on the London Metal exchange traded down 0.22 per cent at $7,182 a tonne in official midday rings, from a close of $7,199 a day earlier. The contract had earlier touched a low of $7,142, its weakest since September 24.

In the London market, copper prices fell on October 3 on persistent concerns about over-supply, but losses were capped by buying on the back of a weaker dollar as US government turmoil was compounded by slow service sector growth for September.

Benchmark three-month copper futures on the London Metal Exchange closed ring trading were down 1.2 per cent at $7,189 per tonne, as the dollar hit an eight-month low. The metal has lost more nearly 10 per cent this year.

In the London market, copper turned positive after hitting a one-week low on October 2, as the dollar fell sharply against the euro on weak US job data, and as the European Central Bank decided to keep its policy rate unchanged. Benchmark three-month copper on the London Metal Exchange was up more than one per cent at $7,271.50 a tonne, from a close of $7,199 a day earlier.

Meanwhile, the dollar weakened to its lowest since late August against the yen, and equities lagged as investors feared that the deadlock over the Congress funding row could drag on. A weaker dollar makes dollar-priced metals cheaper for non-US investors.And investors are now concerned about a looming copper market surplus that has come just as top consumer China’s stellar appetite for some commodities weakens.

Trading volume is thin with China, which accounts for 40 per cent of the global refined copper demand, away until October 7 for National Day holidays. And as a result of the US government shutdown, investors may be unable to take cues from key US government data.

A drop-off in US economic data at a time when the Federal Reserve has muddied expectations on when it will start reducing its monetary stimulus could hit demand for risky assets such as copper.

Meanwhile, the International Copper Study Group forecasted excess supply of about 390,000 metric tonne on October 3 for 2013, which is set to increase further next year.

Updated Oct 07, 2013 07:53am

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