Oil

AFTER a surge in US gasoline inventories, oil prices slipped last Thursday, reinforcing worries of a global oversupply.

US crude and oil product stocks rose 2.62m barrels in the week ending July 15 to an all-time high of 2.08bn barrels, the US Energy Department said.

US oil for September delivery recently fell 42 cents to $45.34/barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 26 cents, or 0.6pc, to $46.91/barrel on ICE Futures Europe.

Futures fell as much as 1pc in New York. US crude and gasoline stockpiles were at the highest seasonal level in at least a decade last week.

Prices broke through the $50 threshold in early June amid supply shortages sparked by wildfires in oil-producer Canada and militant threats in Nigeria. Renewed economic pessimism surfaced in the weeks that followed the British referendum to leave the EU.

The world’s top crude-oil exporter, Saudi Arabia is boosting gas capacity, with major new projects meant to reduce the country’s reliance on crude oil for producing electricity. Recently Saudi Arabian Oil Co, the country’s state-owned energy firm, said it had formally signed contracts to carry out a $13.33bn gas project first announced last year.

Once completed in 2019, the Fadhili project in an isolated stretch of desert in the eastern province will be the country’s first to treat gas from both onshore and offshore fields.

The start of the Fadhili project comes after a gas development called Wasit started production in March. It is expected to add 20pc to Saudi Arabia’s natural-gas production when it reaches full production capacity in the next few weeks.

The Kingdom has also committed around $10bn to gas exploration and is focusing on deep water areas of the Red Sea, shale gas in the north and the potential for more gas production from its giant oilfields.

By 2020, Saudi Arabia has a goal of increasing its gas production capacity to 17.8bn standard cubic feet a day, up from about 12bn now and 6bn in 2000.

Gold

GOLD remained above a three-week low on Thursday, as the dollar and European shares fell after the European Central

Bank left key interest rates unchanged, but better-than-expected US jobs data weighed.

Gold for August delivery was recently up 0.3pc at $1,323.70/troy ounce on the Comex division of the New York Mercantile Exchange. Prices hit $1,310.70/troy ounce earlier in the session.

Monetary easing tends to increase gold demand by prompting investors to buy the precious metal as a hedge against weakening paper currencies.

Gold prices are down nearly 4pc from a high of around $1,375/troy ounce hit this month, though they are still up 24pc on the year.

The ECB held rates at record lows as it seeks to revive growth and inflation with cheap credit to the economy. It added that it still expects its key interest rates to remain at present or lower levels for an extended period.

Gold has rallied 25pc this year as investors boosted holdings, the Federal Reserve failed to add to last year’s rate rise and central banks in Europe and Japan embraced negative borrowing costs. The International Monetary Fund has scrapped its forecast for a pickup in global growth, citing Brexit.

According to IMF statistics, the Chinese and Russian central banks have been the only really major purchasers of gold on a regular basis over the past few years, followed perhaps by Kazakhstan at a somewhat lower level.

Meanwhile, Venezuela has been having to sell a significant proportion of its gold to meet its international debt commitments. So far this year it has reported sales of around 67 tonnes. Gold consultancy Metals Focus estimated 2015 central bank gold purchases at 566 tonnes.

Copper

LONDON copper rose towards $5,000 a tonne on Thursday, finding some support as the dollar eased from a four-month high, and after China’s copper imports remained solid in June.

Price gains across metals this year, ranging from a 6pc rise in copper to a 40pc surge in zinc, have been bolstered by a recovery in oil prices and a shallower rate rise path in the US following the Brexit.

In London Metal Exchange copper climbed by 0.7pc to $4,999 a tonne, having hit the highest since July 15. Shanghai Futures Exchange copper rose by 0.5pc to 38,650 yuan ($5,791) a tonne.

China’s refined copper imports for June rose by 19.7pc on the year to 305,304 tonnes, while refined copper exports also jumped by 192.4pc to 42,596 tonnes, customs data showed.

Underpinning gains in zinc, the global zinc market deficit surged to 68,700 tonnes in May from a revised 5,000 tonnes shortfall in April. LME zinc prices have taken off after the closure of several giant mines since late last year, up 1.2pc on Thursday to hit a new 14-month high at $2,272.50 a tonne. LME nickel prices rallied 1.3pc at $10,730 a tonne, hitting the highest since October.

China, the world’s top producer of refined copper, boosted output by 7.6pc in the first half of this year as margins rose, even after smelters pledged late last year to cut output to shore up prices.

Production increased to 4.03m metric tonnes in the first six months, the National Bureau of Statistics said. June production climbed to 686,000 tonnes from 680,000 tonnes the previous month, though less than 693,000 tonnes a year ago.

Published in Dawn, Business & Finance weekly, July 25th, 2016