OIL

BRENT crude oil fell back to $55/barrel on March 19 after Kuwait said Opec had no choice but to keep production steady, refocusing the market on global oversupply as the dollar recovered from sharp losses in the previous session. Brent had rallied by more than $2bpd earlier after the US Federal Reserve indicated it would follow a more gradual path to raising interest rates, overshadowing data showing US crude stocks at a record level.

The dollar fell by its most in six years after the comments from the Fed, boosting oil and metals priced in the greenback as they became cheaper for holders of other currencies. But on March 19, the dollar snapped back by more than 1pc.

Brent for May delivery was down 77 cents at $55.14/barrel. Brent fell from highs above $115 last June to near $45 in January. US crude for April delivery fell by $1.44 to $43.22/barrel, after hitting $42. Weak global demand and booming US shale oil production are seen as two key reasons behind the price plunge, as well as Opec’s reluctance to cut its output. Opec is next due to meet in June, when it will decide on its output policy after deciding to keep its production steady at the end of 2014. The group produces about 40pc of the world’s crude oil.

Prices have slumped around 60pc since last June and tipped lower again on March 19 after a volatile week. The drop was compounded by a larger-than-expected build up in US crude inventories.

Earlier the US Energy Information Administration reported commercial crude stocks nationwide rose by 9.6m barrels to 458.5m, the highest level since 1930. The increase came as domestic oil production rose again to 9.4mbpd, the most in more than four decades. Output accelerated by 53,000bpd to 9.42mbpd, the fastest pace since at least January 1983. Inventories at Cushing, Oklahoma, the delivery point for WTI contracts, climbed by 2.87m barrels to 54.4m, the highest level since April 2004, the report showed. Stockpiles at the nation’s biggest oil-storage hub have surged by almost 70pc this year amid a shale boom.

Iran says it could add 1m barrels to daily oil production shortly after a deal to lift sanctions is reached, reclaiming the position of Opec’s second-largest supplier. While the timing of such a move would be at least months away because the sanctions would be rolled back slowly, industry observers largely agree that the capacity is there. Iran is seeking to forge a final agreement with international powers by June that would put curbs on its nuclear programme in exchange for the phasing-out of sanctions that cut its crude exports, choked cash flow and halted most oil investment. The country produced 2.8mbpd of oil a day last month, compared with 3.6m at the end of 2011. The International Energy Agency, a Paris-based adviser to 29 nations on energy policy, says Iran could pump 3.6mbpd within three months of the removal of sanctions.

The Opec in its monthly oil market report on March 16 has given an indication of demand-supply conditions that are expected to play out in 2015. The cartel of oil producing countries says that it has seen price of the Opec Reference Basket average at $54.06/barrel in February, representing a gain of 22pc, on higher demand and expectations that oil prices have hit a bottom.

The monthly report says that there are no changes to global growth forecasts, as the forecast for the world has stayed stable at 3.4pc in 2015. The Opec monthly report estimates world oil demand growth in 2014 to remain at 0.96mbpd. For 2015, global oil demand growth is expected to average 1.17mbpd, relatively unchanged from the previous month. Almost half of 2015 oil demand growth is projected to come from China and the Middle East.

In the fourth quarter of 2014, output outpaced expectations. Now non-Opec oil supply growth is estimated at 2.04mbpd. In 2015, non-Opec oil production is expected to grow by 0.85mbpd.

Non-Opec supplies of crude oil has averaged at 56.33mbpd in 2014, achieving the highest growth rate since the emergence of US tight oil and unconventional NGL output in the US. According to Opec’s monthly report on oil markets, non-Opec oil supply for 2015 is projected to average 57.16mbpd, representing growth of 0.85mbpd — mostly in first half of 2015.

GOLD

GOLD prices surged more than 2pc on March 18, on track for the biggest rally since January after the Federal Reserve signaled a more cautious outlook for US economic growth, and the dollar tumbled. The Fed opened the door further for an interest rate hike as early as June, ending its pledge to be ‘patient’ in normalising monetary policy. But its cautious outlook on the economy showed it remains concerned about the health of the recovery.

The most actively traded contract, for April delivery, rose $17.70, or 1.5pc, to $1,169/troy ounce on the Comex division of the New York Mercantile Exchange. This was the highest close in two weeks and the biggest one-day percentage gain since January 30.

China’s central bank on March 19 detailed plans on granting more licences for gold imports and exports, while maintaining that it could impose trade restrictions when necessary. A further opening up of the world’s second biggest bullion market would underpin demand for the metal while also boosting global prices that have dropped 9pc in two months.

Import licences could be granted to gold producers, refiners and financial institutions, who meet certain requirements, from April 1, the central bank said. Currently, only 15 banks can import gold into China.

In the last few years, Beijing has accelerated the pace of reforms in the gold market. It allowed foreign banks to import gold for the first time in 2013 and launched gold-backed exchange traded funds for the first time that year. In 2014, it opened up yuan-denominated gold contracts to foreign investors on the Shanghai Gold Exchange, which launched gold options trading on a trial basis this year.

Published in Dawn, Economic & Business, March 23rd , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play