Oil

Crude oil prices edged up on Thursday as demand was estimated to have remained strong despite slowing growth in Asian economies, and as Russian and western campaigns against militants in Syria worried markets.

In the Hong Kong market China’s stock-market turmoil this summer has prompted a rush of gold buying by the world’s number one consumer of the shiny metal, but prices are still hovering near five-year lows because investors worry the commodity, denominated in dollars, will become more expensive when the US Federal Reserve raises rates.

Withdrawals of gold from the Shanghai Gold Exchange — a barometer of Chinese investment and retail demand — have reached 1,891.9 tonnes so far this year, 560.9 tonnes more than during the same period last year and 281 tonnes more than the comparative period in 2013.

Chinese consumers, seeking a safe haven as stocks tanked, have ramped up gold buying earlier than normal.

The early pickup in Chinese demand is good news as total gold consumption in China fell 3pc to 216.5 tonnes in the second quarter. Weak demand from India, which together with China accounts for nearly half of the global demand, resulted in gold purchases plummeting to a five-year low during the period.

Indian demand is also expected to pick up in coming weeks with the start of a series of Hindu festivals, although a hit to farm incomes due to scanty rains may affect volumes of purchases.

While the expectation of a rise in US interest rates have kept a lid on gold prices, Chinese investors are buying more gold because they don’t think prices will collapse even if a rate increase goes through as most people have already factored in the move to their forecasts.

Besides physical demand from Asia, gold is also finding some support from central banks with Russia and Kazakhstan taking advantage of the low prices to boost their official holdings.

World oil demand surged in the first six months this year against the same period in 2014, due to a halving in crude oil prices. On the morning of October 1, West Texas Intermediate crude oil futures in New York rallied more than 4pc to as high as $47.07.

Oil prices fell back later in the day on October 1, after an early rally on fears of storm damage to US oil installations faded. The US West Texas crude was down 20 cents at $44.89 by 12:13 pm EDT (1613GMT). It had risen more than $2 or 4pc earlier.

Brent crude the global benchmark for oil, was down 54 cents at $47.83/barrel after hitting a one-week high at $49.84.

In a recent release, the Energy Information Administration said that US oil production fell 0.4pc to 9.1mbpd. In the same period, the number of barrels in storage rose by 3.95m, more than expected and the most in four weeks.

A separate report showed that US production in July rose to 9.358mbpd, compared to 9.29 in June.

Despite stronger crude futures, physical crude markets weakened amid concerns over whether the growth in consumption could last if slowdowns continue in Asia’s leading economies.

Asia’s benchmark physical price, Dubai crude, averaged $45.375/barrel for September, the lowest since February 2009.

South Korea’s crude oil imports in September fell 0.8pc from a year earlier to 76.1m barrels, preliminary official data showed.

Across Asia, there were more signs of economic slowdown. In China, Asia’s biggest economy, activity in the manufacturing sector contracted for a second straight month in September. In Asia’s second-largest economy, Japan, manufacturers’ confidence worsened in the three months to September, a central bank survey showed, as they felt the pinch from volatile financial markets and slumping shipments to China.

OPEC oil output has risen in September from the month before, as Iraq’s northern exports recovered from disruption that had halted supply growth from the group’s second-largest producer. Saudi Arabia and other Gulf members of the Opec have kept output mostly steady, a further sign they are sticking to their focus on defending market share instead of prices.

Opec supply has increased in September to 31.68 mbpd from a revised 31.57m in August.

With the increase in supply this month, Opec has boosted production by almost 1.5mbpd since it switched in November 2014 to defending market share from its previous policy of cutting output to prop up prices.

Analysts see signs that Opec’s strategy to curb growth in higher-cost production by letting prices fall is starting to deliver.

Gold

In the London market, gold recovered from two-week lows on October 1 as the dollar lost ground to the euro.

Expectations the US Fed is set to raise rates this year for the first time in nearly a decade have pressured gold, as it would potentially lift the opportunity cost of holding non-yielding bullion while boosting the dollar.

The metal, however, rebounded as data showing the pace of growth in the US manufacturing sector had slowed in September pushing the dollar lower versus the euro.

Spot gold was up 0.2pc at $1,117.11/ounce at 2.25pm GMT, after dropping to $1,110.75, its lowest since September 16. US gold futures for December delivery were up $1.30/ounce at $1,116.50.

In the New York/London market palladium rose to its highest level in nearly three months on October 1, on report of strong car sales from major automakers, continuing a trend in which the component of gasoline engine auto catalysts gains at the expense of platinum.

Palladium is chiefly used in auto catalysts for gasoline engines, while platinum is mainly used in auto catalysts for diesel engines.

Spot palladium was up 3.3pc at $672/ounce as of 3:20 pm EDT (1921GMT), after rising as high as $679.50, its highest level since July 7. The rally accelerated when the metal broke through its previous high for the week at $669. Platinum was down 0.5pc at $899.50.

Published in Dawn, Business & Finance weekly, October 5th , 2015

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