Oil

Oil prices gained on August 20, after the US government inventory data showed a decline in crude-oil supplies as refineries processed more oil than expected last week. Crude-oil stockpiles decreased by 4.5m barrels to 362.5m barrels, the US Energy Information Administration said. Light, sweet oil for September delivery settled up $1.59 at $96.07/barrel on the New York Mercantile Exchange. The September contract expired at settlement. The more-actively traded October contract rose 59 cents, or 0.5pc, to $93.45/barrel. Brent prices rose by 72 cents to $102.28/barrel on ICE Futures Europe.

Oil stockpiles are at their lowest since February, after hitting record highs in April. Supplies typically fall in the summer and build in the fall when refiners shut down units for seasonal maintenance.

Libya has restarted oil exports from its biggest port, Es Sider, for the first time since the end of a year-long blockade. The Opec’s oil production has risen in the past few weeks to 560,000bpd as ports in the east have resumed work under a deal with a group of federalist rebels. Traders and shipping sources expect several more cargoes to be shipped by companies with stakes in the Waha Oil Co, which runs the Es Sider port and connected oilfields, such as Marathon Oil, Hess, and ConocoPhillips. The Es Sider port currently holds some 4.5m barrels in storage, but once the tanks are emptied, the connected oilfields can restart production, officials said.

The global oil demand growth forecast for 2014 has been curtailed to a more modest 1mbpd, according to the International Energy Agency’s (IEA) most recent Oil Market Report. The revision was primarily due to lower-than-expected second-quarter deliveries and downgraded macroeconomic outlook from the IMF. Demand growth is forecast to accelerate in 2015 to 1.3mbpd as the economy improves. Global oil supply in July averaged 93mbpd, up 230,000bpd from a month ago and 840,000bpd from a year ago.

With a boost from Saudi Arabia and a tentative recovery in Libyan output more than offsetting losses in Iraq, Iran, and Nigeria, production from members of the Opec rose by 300,000bpd to 30.44mbpd in July, a five month high.

Non-OPEC production in July fell 170,000bpd month-on-month to 56.2mbpd, on declines in Brazil, Mexico, and Russia, and lower output in Colombia and Yemen.

OECD industry stocks in June posted their sixth consecutive monthly build, rising 13.8m bbl to 2,671m bbl at month’s end, the highest level since September 2013.

The IEA’s latest report on global energy investments notes that while unconventional crude oil and natural gas reserves from North America have snared the majority of investments over the past decade, the Middle East will be crucial to meet the energy demand of a fast-growing world.

We look at the Middle East, where increased investment remains absolutely critical to the longer term outlook for oil markets, once the current surge in non-OPEC production starts to plateau in the 2020s; if investment does not pick up as needed, this will mean much tighter and more volatile oil markets in the 2020s, said the IEA executive director.

The Middle East region has typically invested $62bn each year on average over the past decade in its oil sector, but it will need to steadily raise investment to $78bn each year until 2020, and around $92bn annually over the next decade. All in all, the Middle East region needs to invest $3.2trn over the next two decades, with crude oil accounting for $1.9trn and natural gas garnering another $700bn during the period.

The Middle Eastern refinery sector has the potential to emerge as a magnet for investment, with nearly $193bn expected to be invested in the sector over the next two decade. More than $100bn will likely be invested in new refineries to build new capacity of 2.9mbpd.

Gold

Gold prices continued to fall in electronic trading on August 20, as minutes from the Federal Reserve’s most recent meeting showed the central bank debating whether to raise interest rates sooner than expected. Gold for December delivery, the most actively traded contract, was recently down $6.10 at $1,290.20/troy ounce in electronic trading on the Comex division of the New York Mercantile Exchange. The contract finished at $1,295.20 at the end of floor trading, the lowest settlement since August 5.

In other markets, palladium for September ended down 1.4pc at $868.45/troy ounce, as investors sold some positions after the precious metal climbed to a fresh 13-year high earlier this week on expectations that tensions between Russia and the West would disrupt exports of gold.

Palladium futures prices opened last week at nearly $895/ounce — their highest level since February 22, 2001 — on trader fears that exports from Russia could be limited by sanctions. The precious metal is crossing 13-year highs. Despite supply worries having largely abated on resumption of supplies from South Africa with a five-month miners’ strike ending in June, most analysts are expecting palladium to touch levels around $1,000/troy ounce,

Palladium is the most industrial-oriented of the precious metals, according to ETF Securities, with industry accounting for about 80pc of global demand. The metal’s primary use is in the manufacturing of catalytic converters, which help control vehicle emissions.

South Africa and Russia combined account for close to 80pc of global supply of palladium and 70pc of platinum output.

While supply worries were behind the rise of the metals this year, focus is now shifting to the demand side as the number one consumer – Europe’s car industry –only managed to produce 3pc more vehicles in the first half of the year as Europe’s largest economies look in danger of sliding back into recession. A slowing economy in China is also clouding the outlook.

Published in Dawn, Economic & Business, August 25th, 2014