Oil

US oil last Thursday moved away from one-week lows of the earlier session before, with investors turning their attention to upcoming government data on US inventories.

Sentiment in oil markets has been torn between expectations of a rebound in US shale production and hopes that oversupply may be curbed by output cuts announced by the Opec and others.

The international benchmark for oil prices, Brent crude rose 51 cents, or 0.95pc to $54.43/barrel by 0321GMT after closing down 2.8pc in the last session. US West Texas Intermediate crude oil was trading up 46 cents at $51.54/barrel, having dropped to a one-week low on Wednesday at $50.91/barrel.

A day earlier crude prices had fallen weighed down by a strong dollar and concerns that rising US shale production may offset a move by major producers to cut global supply.

Brent crude the global oil benchmark fell 96 cents, or 1.7pc, to $54.51/barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were down 96 cents, or 1.8pc, at $51.50/barrel.

Investors are getting jittery about reports of rising US shale oil production that could wipe out the price gains made since the Opec and other oil producers agreed to curb output in November.

Opec and other producers’ decision to reduce output by nearly 1.8mbpd has supported crude prices and prompted US producers to increase shale output, which now surpasses the volume that Saudi Arabia, the world’s top crude exporter, previously committed to cutting.

Earlier in the week, the US Energy Information Administration projected that shale oil production would increase to 4.75mbpd in February. The body also revised upward its shale oil production numbers for January to 4.71mbpd from 4.54m. Oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, was expected to see a rise of 53,000bpd — the largest increase among the big shale plays.

Oil has gained since the Opec and 11 other nations agreed late last year to trim supply but a rally above $55/barrel was short-lived amid concern rising prices would spur more production elsewhere.

Opec forecasts an uptick in the global demand for oil, based on a projection of global economic growth of 3.2pc in 2017. The Opec report anticipates that global daily consumption of oil will rise to 95.6mbpd. The report also reflects the portion of Middle East-based oil in the global supply is growing.

World oil markets are slowly tightening as demand rises while investors wait to see if production cuts agreed by Opec and other producers will be implemented as promised, the International Energy Agency said on Thursday.

In its monthly oil market report, the IEA said output cuts announced that Opec-led producers had ‘entered their probation period’ in November.

Opec agreed in November to cut production by 1.2-32.5mbpd for the first six months of 2017, together with another 558,000bpd in cuts from the likes of Russia, Oman and Mexico.

Gold

GOLD prices edged down last Thursday on a strong dollar after Federal Reserve advocated lifting US interest rates gradually.

Spot gold was down 0.1pc to $1,202/oz, after dropping to as much as $1,197.31. The bullion hit an eight-week high of $1,218.64 last Tuesday. US gold futures had fallen as much as over 1pc.

US President-elect Donald Trump has called for tax cuts and more infrastructure spending which has boosted US shares and the dollar and seen a sell-off in Treasuries. His protectionist statements and off-the-cuff Tweets have led many investors to opt for gold.

Gold demand in India, which trails only China, probably tumbled to a seven-year low in 2016, according to the World Gold Council, which has cut its forecasts twice. The council pegged consumption at 650-750 metric tonnes, down as much as 24pc from 858.1 metric tonnes in 2015.

The decline will continue in 2017, based on slowing imports that account for much of what the country buys, said Kotak Mahindra Bank Ltd. Purchases of foreign bullion will be 350-400 tonnes, down from 575 tonnes last year, the bank said.

The bullion market weakened further after the government invalidated old 500- and 1,000-rupee notes ($7-15).

Copper

COPPER reversed early losses to follow Shanghai futures higher last Thursday as expectations of steady growth in China helped the red metal along with positive US economic signals.

China’s economy likely grew by a steady 6.7pc in the fourth quarter, the same as in the previous three quarters, supported by government spending and record bank lending. China is the top consumer of copper and other commodities, and markets keep a close watch on its economic strength.

A stronger greenback makes dollar-denominated assets such as copper more expensive for holders of other currencies and can cap gains in a rising market.

Three-month copper on the London Metal Exchange rose 0.06pc to $5,773/tonne.

The most-traded copper contract on the Shanghai Futures Exchange rose 0.39pc to 46,730 yuan ($6,805) a tonne.

The positive sentiment for copper and industrial raw materials were also nurtured by the November victory speech by Trump which proposed an infrastructure stimulus plan of ‘$1tr over a 10-year period’ that would require massive tonnages of copper and other construction materials.

Published in Dawn, Business & Finance weekly, January 23rd, 2017