Oil

IN the London market, oil prices steadied on April 29, after news that King Salman of Saudi Arabia had altered the kingdom’s line of royal succession in a reshuffle that also affected leadership of the national oil company, Saudi Aramco. He appointed Saudi Aramco Chief Executive Khalid al-Falih as chairman of the state oil firm. But this announcement had little impact.

Volume in Brent crude oil dropped sharply after the Saudi announcement at about 0130GMT, only picking up some hours later when European markets began trading Brent crude oil was down 44 cents at $64.20/barrel by 0820GMT. US crude was down 50 cents at $56.56.

Oil prices slipped away from five-month highs in early Asian trading on April 30, as Japanese factory output weakened for the second straight month. Japanese industrial output fell 0.3pc in March adding to mounting evidence of an export-driven economy struggling to regain momentum amid slowing global growth.

Brent crude futures dropped 41 cents from their last settlement to $65.43/barrel by 0105GMT. US WTI crude was down 13 cents at $58.45/barrel.

The basket of crude oil used as a benchmark indicator by Opec, dropped to reach $60.41/barrel, the Opec Secretariat announced on April 29. The Opec said the price of its basket, which includes 12 varieties of crude, dropped by 1.06pc on Tuesday, compared with the closing price at the previous session.

June delivery of Brent crude opened at $64.53/barrel at the start of April 29 trading on the futures market, a decrease of 0.10pc from the previous session’s close.

Meanwhile a large drop in profits reported by BP last week has been blamed on the low oil price and economic sanctions imposed on Russia.

The British oil and gas company reported a fall in underlying profits of 19pc to $2.58bn over the past three months, compared with $3.2bn for the equivalent period in 2014.

Sanctions on Russia have added to BP’s woes, as BP owns almost 20pc of the Russian oil giant Rosneft. Profits from the Russian oil company have slid by 65pc to $183m.

BP also announced further charges of $332m that related to the Gulf of Mexico disaster five years ago.

However, the primary cause of the fall in profits was the low oil price, which averaged $54/barrel throughout the first three months of this year. That compares with an average of $108 through the same period in 2014.

Oversupply and a growing oil glut has hit crude prices hard at the end of last year, with the oil price falling from a peak of $115/barrel in June 2014 to just $45 in January.

Gold

IN the London market, gold fell on April 29, as investors took profits following a two-day rally, but soft US economic data that hurt the dollar and lowered expectations for a Federal Reserve rate rise in June limited losses.

Spot gold was down 0.3pc at $1,210.91/ounce at 1309GMT. It has gained nearly 3pc in the last two sessions, climbing to a three-week high of $1,215/day earlier.

The US gold futures for June delivery fell $5.90/ounce to $1,207.80, after rising to their highest level since April 7 in the previous session.

Bullion has been boosted in recent days after a string of US data weakened the dollar and hinted at slowing momentum in the world’s largest economy.

Higher gold prices have also dampened Asian physical demand. In China, the second biggest gold consumer, premiums eased to about $1/ounce on Wednesday over the global benchmark, from $2-3 in the previous session.

Gold retained losses from overnight on Thursday, as the Federal Reserve characterised a recent slowdown in the US economy as transitory, not ruling out an interest rate hike this year.

Spot gold was trading flat at $1,204.10/ounce by 0247GMT, after losing 0.6pc on Wednesday. The metal had hit a three-week high in the run up to the Fed statement on expectations recent soft economic data would prompt the US central bank to delay any rate hike.

The Fed downgraded its view of the US labour market and economy after its two-day policy meet and said the poor performance was in part due to transitory factors.

Bullion traders now believe gold could see further downside as it has failed to hold on to the three-week high.

The dollar fell to a nine-week low on Wednesday after data showed the US economy grew 0.2pc in the first quarter, down sharply from the fourth quarter’s 2.2pc and below market expectations for 1.0pc growth.

Buffeted by a 68pc plunge in the price of silver since 2011, miners who traditionally made most of their money from silver are increasingly diversifying into gold, buying mines that have been put up for sale and looking to acquire more.

In addition to spurring deals in the precious metals space, the trend is reducing investment avenues for those wanting to take a bet on a commodity that often outperforms gold when bullion is rising.

According to BMO Capital Markets, large primary silver miners have increased their gold output on average by 19.4pc a year since 2009 to 2m ounces.

That makes them faster-growing gold producers than gold miners themselves. In that same period, large gold producers increased their gold output by 2.8pc on average annually.

Although gold has outperformed silver, it is still down nearly 40pc since 2011.

Mother nature is also a factor in the silver-to-gold shift. Large, high-grade silver deposits have always been scarce and are becoming more so. Already some 70pc of silver is mined as a by-product from copper, gold, lead and zinc mines.

Published in Dawn, Economic & Business, May 4th, 2015

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