Oil

OIL prices steadied last Thursday as record crude and gasoline inventories in the United States dragged on prices, though Opec supply cuts helped to support the market.

Brent crude was up 10 cents at $55.85/barrel. US light crude gained 10 cents to $53.21.

Despite production cut by Opec countries, inventories remain bloated and supplies high, especially in the US.

US crude and gasoline inventories soared to record highs last week as refineries cut output and gasoline demand softened, the Energy Information Administration (EIA) said.

US oil producers sent a record 7m barrels of crude out into the world market last week, as Opec members have cut back on their output by nearly the same amount. The EIA’s weekly inventory data also showed that US oil stockpiles swelled to a record 518.2m barrels last week, and gasoline inventories also hit a record 259.1m barrels, gaining 2.8m barrels.

Opec and other producers held back about 890,000bpd from the world market in January.

The US imported 7.5m barrels of oil last week, down from 8.8m barrels the week earlier. US oil production has been rising, and held steady at just under 9mbpd last week. The US government expects shale production to increase by 80,000bpd next month, and it forecasts overall oil production to reach 9.5mbpd next year.

Oil prices, stabilised around $50/barrel, have boosted US shale production.

President Donald Trump has just annulled an anti-corruption rule (Cardin Lugar Regulations) that required oil companies to inform regulators when they made payments to foreign governments before mining and drilling abroad.

Opec last week revised up its forecast for worldwide oil demand in 2017 and reported record-setting compliance in the first month of a deal to reduce crude supplies.

The total output of Opec states in January was 29.9mbpd. They aim to remove about 1.2mbpd from the market.

As anticipated, Saudi Arabia delivered the lion’s share of reductions — about 496,000bpd. That was partially offset by production increases in Nigeria and Libya, which are exempt from the deal as they seek to restore oil supply hit by internal conflicts.

Iran — allowed to increase production up to a point — raised output in January by about 50,000bpd.

Global demand for oil could outdo the 10-year average in 2017 as the health of the world economy improves and demand for road transport continues to grow, Opec said in the report.

The new data from the oil cartel expects demand to grow at 1.2mbpd, up slightly from an earlier estimate and ‘well above’ the 1mbpd averages seen in the past decade.

Discoveries hit a six-decade low in 2015, and then dropped again last year to about 8.2bn barrels equivalent of oil and gas. The slowdown reflects both the cyclical cuts in exploration made by companies struggling to stay afloat after the drop in oil and gas prices since 2014, and the structural shift in the industry towards onshore shale and similar reserves, especially in North America.

Gold

GOLD held firm early last Friday as the dollar hovered near one-week lows, putting the precious metal on track for a third week of gains amid political uncertainties in the US and Europe.

Spot gold was mostly unchanged at $1,237.83/oz at 0049GMT, while US gold futures were down 0.2pc at $1,239. Gold is up 0.3pc so far for the week, and has risen about 7.5pc so far this year.

Concern over US President Donald Trump’s policies, as well as elections in the Netherlands, France and Germany this year, have fueled gold’s rise to a peak of $1,244.67 on February 8.

But the prospect of a higher dollar and US Treasury yields after US Federal Reserve Chair Janet Yellen said the US interest rates may need to be raised in March pushed gold to $1,216.41 on Wednesday.

Canada’s Avnel Gold will suspend production at its loss-making Kalana underground mine in Mali for 18 months from June to expand its operations and build a new processing plant, the West African nation’s mines ministry said.

South Africa’s Gold Fields on Thursday announced a rise in profits and a long-awaited plan to make its South Deep mine profitable, with a production target of 500,000oz a year.

US retail sales rose more than expected and consumer prices recorded their biggest gain in nearly four years in January.

Spot gold had ticked up 0.2pc, to $1,235.01/oz at 0529GMT, while US gold futures were up 0.3pc, to $1,236.2.

In the London market, gold prices edged lower last Wednesday after US Federal Reserve hinted, at a hike in interest rates in an upcoming meeting of the central bank. Spot gold fell 0.2pc to $1,225.96/oz, while US gold futures rose 0.1pc to $1,227.

A new report by SNL Metals and Mining on exploration spending by the largest mining companies, shows exploration for gold represented 56pc of the total budget of the largest players — gold companies usually dominate the top 20 list.

Together copper and gold account for 90pc of the budgets of the top 10 companies.

Published in Dawn, Business & Finance weekly, February 20th, 2017