Oil

BRENT oil futures climbed above $50/barrel on Thursday for the first time in nearly seven months as a global supply glut that plagued the market for nearly two years showed some signs of easing.

Oil prices have rallied in recent weeks after a string of outages which (wildfires in Canada and unrest in Nigeria and Libya) knocked out nearly 4mbpd of production.

Above $50/barrel, oil was seen by some market players as breaching a psychological barrier that could lead producers, particularly among US shale companies, to revive operations scrapped in recent years.

Brent crude futures, used to price much of the world’s oil, rose as much as 39 cents, or 0.8pc, to $50.13/barrel during Asian trading hours Thursday, their highest level since November.

West Texas Intermediate, the US benchmark, was at $49.90 a barrel.

Oil futures dipped further in early Asian trade on Friday, finding resistance at the $50 a barrel mark as investors worried higher prices could reactivate shuttered crude output, adding to global oversupply.

US crude CLc1 fell 7cents to $49.41/barrel after settling down 8cents in the previous session. It touched $50.21 earlier on Thursday, its highest since early October. Brent LCOc1 fell 9cents to $49.50. Brent closed down 15 cents, retreating from $50.51, its highest since early November.

Many analysts cite strong demand from major emerging countries such as China and India, coupled with supply constraints on many main producers in the Middle East, as a reason to remain bullish on oil.

Also the waning North American output helped drain a massive overhang in US stockpiles, which have eased from 80-year highs reached weeks ago.

US crude oil inventories fell by 4.2m barrels to 537.1m barrels in the week to May 20, according to US Department of Energy data.

Canada is the biggest supplier to the US and wildfires in the western provinces have reduced supplies by about 1mbpd.

Brent crude has now risen 80pc since it hit 13-year lows of below $28/barrel at the start of the year.

More than two-thirds of Gulf banks reported an increase in unpaid loans in the first three months of the year and more defaults are likely as oil-dependent governments slash spending to adjust to lower crude prices.

National Commercial Bank (NCB), Saudi Arabia’s largest bank by assets, put aside 58.8pc more money to cover bad loans during the quarter, analysts estimate, partly due to delays in government payments to its customers. National Bank of Abu Dhabi, the country’s largest bank by assets, reported 73.3pc more defaulted loans over the same period. Small and medium-sized businesses are struggling as well as some larger companies.

The Abu Dhabi government cut spending by 20pc in 2015, according to estimates by ratings agency Fitch, while in Saudi Arabia, cash withdrawals were down 8pc in March compared to a year ago, official data shows.

A report has revealed that new oil discoveries in 2015 were estimated at 12.1bn barrels, which is the lowest of all discoveries made a single year since 1952.

Last year was also the fifth year in a row in which the new reserves discovered were smaller than in the previous year.

E&Ps have slashed their exploration budgets in a bid to weather the effects of the oil price drop. They’ve laid off hundreds of thousands of staff and are focused on staying afloat, lacking not just the money, but also the motivation to look for new oil reserves when profitability is questionable. Meanwhile, oil companies are diversifying into renewables.

Gold

IN the London market gold rose on Thursday, moving away from a seven-week low hit in the previous session, as the dollar extended losses after the release of US economic data.

Spot gold rose 0.1pc to $1,224.96/ounce. The metal had fallen to its lowest since April 6 at $1,217.25 on Wednesday. US gold was up 0.2pc at $1,225.60.

The prospect of an interest rate rise, as indicated by US Fed meeting minutes released two weeks ago, and a strengthening dollar have pushed gold down 5pc so far in May, putting it on track for its biggest monthly decline since November.

Higher interest rates increase the opportunity cost of holding non-interest yielding gold.

Earlier gold prices slumped to a seven-week low as investors sold holdings amid growing expectations of a US interest-rate increase this year.

Gold futures ended down 0.4pc, at $1223.80/troy ounce on the New York Mercantile Exchange. The settlement was the lowest since April 6.

Gold crawled higher early Friday but stayed near seven-week lows and remained on track for its biggest weekly decline in nine, with positive economic data boosting expectations US interest rates will rise in the next two months.

Spot gold had climbed 0.2pc to $1,222.46/ounce. The metal has fallen about 2.4pc so far this week, heading towards its biggest weekly decline since March 25. US gold was up 0.2pc at $1,222.50.

Venezuela has sold at least $1.7bn in gold reserves to pay debts this year, decreasing the South American country’s gold reserves to the lowest level on record.

Venezuela, which had the world’s 16th largest gold reserves, began selling part of its 367 tonnes of gold reserves in March 2015 - likely to Russia, China and Switzerland.

Beginning in 2010, central banks around the world turned from being net sellers of gold to net buyers of gold. Last year they collectively traded 483 tonnes—the second largest annual total since the end of the gold standard—with Russia and China accounting for most of the activity.

Published in Dawn, Business & Finance weekly, May 30th, 2016