OIL

Crude oil prices continue to slide with surging production and weakening global demand. Key benchmarks are close to a four year low, with West Texas Intermediate closing at $81.84, well below the $100-120 range reached between 2010 and 2012.

In fact, the drop has been startling, with West Texas Intermediate (WTI) closing 4.77pc on October 16 alone, while other key benchmarks have also not fared better. Until recently, Brent Crude Oil has traded significantly higher than WTI.

Surging production and better transportation options have significantly whittled away at the typical $10-20/barrel spread over the last several years. Oil prices have been in a free-fall for nearly four months. Since hitting a peak of over $107 in June, the price of West Texas Intermediate crude oil has since fallen over 24pc. Brent crude oil has also struggled, falling as low as $84.85/barrel on October 15. That’s the lowest since November 2010.

Oil fell more than $1/barrel on October 16, to a four-year low below $83/barrel as growing concerns over the global economy stretched a four-month rout. Global benchmark Brent has lost more than 28pc since June on slow demand and abundant supply. Losses have accelerated in October on signals that the Opec has no plan to cut output. Brent Crude for November delivery had dropped to $82.72/barrel, the lowest since November 2010 and was down 62 cents at $83.16/barrel. US crude fell $1.01 to $80.77/barrel.

Dragging oil demand may continue longer than many economists would like as global economies struggle to post strong recoveries, and some nations, such as Japan, substitute oil for natural gas and alternative fuel sources.

Libya’s oil production has recovered strongly, insulated from violence. Continued growth in the US shale production is yet another factor. And then a stronger dollar is not helping prices.

The dollar hit a four year high on October 3 as measured by the Bloomberg Dollar Spot Index, which tracks the greenback against 10 global trading partners.

Demand for oil in 2015 will grow far slower than previously forecast as global economies remain weak, the International Energy Agency (IEA) said in a recent report, and prices may extend their sharp fall so long as Opec shows no sign of countering a supply surge.

The IEA said it cut its 2015 estimate for oil demand growth by 300,000bpd from its previous forecast and now expects demand growth of 1.1m bpd to 93.5m. It cut its 2014 estimate by 200,000bpd to 0.7m bpd.

GOLD

Gold prices are at their highest levels in five weeks, while crude oil prices are down at multi-year lows. In the New York market gold rose on October 15, as global equities plunged and US Treasuries prices surged following disappointing US data, sparking economic fears and lifting bullion’s safe-haven appeal.

The precious metal’s failure to extend its rally despite heightened global market volatility, however, suggested gold prices could pull back in the near term, analysts said. US COMEX gold futures for December delivery settled up $10.50/ounce at $1,244.80 in unusually heavy trading volume.

Gold took some support from physical markets. Gold imports in India, the world’s second-biggest consumer of the metal, nearly doubled in September from August to $3.75bn, ahead of the country’s wedding and festival season.

Gold capped the longest rally since August as weaker global economies and slumping US equities revived demand for the metal as a haven asset. More than $970m has been added to the value of global exchange-traded products backed by bullion this month.

The metal has fallen back in favor after Federal Reserve officials indicated weaker foreign expansion posed a risk to the US outlook.

In the New York/London market gold prices were steady on October 16, supported by renewed worries about a global economic slowdown, but bullion’s failure to rally at a time of extreme volatility in equity and energy markets suggested the metal could pull back in the near term. Economic growth fears hit demand expectations for industrial metals and palladium, which is used mostly by the automobile industry as a catalytic converter. Palladium dropped 5 percent briefly before paring losses. Spot gold was down 0.1pc at $1,239.61/ounce trading in a narrow range of less than $10. A day earlier, the metal rose to $1,249.30, its highest in more than a month. US gold futures settled down $3.60/ounce at $1,241.20 in heavy turnover.

COPPER

Copper prices closed at their lowest levels in more than six months on October 16, weighed down by selloffs in equity markets and gloomy views on global growth. Copper for December delivery, the most actively traded contract, fell 0.9pc to $2.9815/pound, the lowest settlement since March 26. The decline followed sharp drops in stock markets around the world, sparked by worries about the state of the global economy.

Copper futures tumbled the most in seven months as signs of muted inflation signaled lower metal demand in China, the world’s top user, and the US, the second-biggest. In September, Chinese consumer costs rose at the slowest pace since January 2010, and US wholesale prices unexpectedly fell for the first time in a year. Copper fell 6.1pc in the third quarter amid concern that supplies will top demand.

The global market will swing to a surplus next year, the International Copper Study Group estimates. Even with signs of slowing demand, mining companies are spending more to increase production. Copper futures for December delivery tumbled 2.6pc to settle at $3.009/pound on the Comex in New York, the biggest decline for a most-active contract since March 11.

Demand will top refined production by 307,000 metric tonnes in 2014, the International Copper Study Group said recently. The shortfall will end next year, with output exceeding usage by 393,000 tonnes, the group estimates.

Published in Dawn, Economic & Business, October 20th, 2014