OIL prices traded little changed last Thursday, as support from a weaker dollar was offset by a stubbornly high level of US inventories near record highs that suggested Opec-led output cuts were starting to drain supplies.

The Opec and some non-Opec producers cut production from January 1 to reduce record stocks of crude. But an oil price rally after the deal has been hobbled by data showing persistently rising US stockpiles.

US West Texas Intermediate (WTI) ended Thursday’s trade 11 cents lower at $48.75/barrel, edging off a three-month low hit last Tuesday.

Brent crude oil was down 11 cents to $51.70/barrel, recovering from Tuesday’s drop to $50.25, its lowest since November 30 when Opec announced its supply accord.

The price is still nearly $7 below January’s post-deal peak of $58.37.

Demand growth for oil is expected to drop from 1.6mbpd last year to 1.4mbpd in 2017, the International Energy Agency said in a recent report, raising further problems for producers as they try to ramp up prices.

“Early indicators of 1Q17 (first quarter of 2017) demand support this, with slowdowns seen in January in Japan, Germany, Korea and India,” the IEA said.

In terms of output, the IEA noted that member countries of the Opec oil-producing cartel cut their production for the second month in a row. At the end of last year, they agreed to reduce production to ensure prices would go up. But non-Opec countries, some of which have also signed the output freeze deal, could undermine the deal.

“In 2017 non-Opec output is set to rise 0.4 million barrels a day to 58.1mbpd,” the IEA said.

Opec has raised its 2017 estimates for oil production from outside of the cartel as US shale drillers ramp up activity in response to higher prices, underlining the threat to the group’s attempts to balance the market.

Non-Opec oil supply is now projected to grow by around 400,000bpd this year to average 57.7mbpd, Opec said in said in its monthly market report. That marks a 300,000bpd increase on its total forecast just one month ago and comes after a near 10pc drop in prices last week.

Brent crude, the global benchmark, has dropped by nearly 7pc this month to $51.79/barrel while US marker West Texas Intermediate has fallen by almost 10pc to $48.73/barrel.

Among producers outside the cartel, the biggest contributor in 2017 is expected to be the US, which will add 340,000bpd. Brazil and Canada will increase by a higher level of 260,000bpd; Kazakhstan by 140,000 and smaller non-Opec countries in Africa will add several thousand barrels.

Gold

Gold rallied after the Federal Reserve announced an increase to its key short-term interest rate last Wednesday.

US central bank lifted a key short-term interest rate by a quarter-point to a range of 0.75-1pc. It also stuck to its forecast for two more rate increases this year.

Gold for delivery in April, the most active contract on the Comex market in New York with nearly 23m ounces traded, was trading just below $1,200 before the decision, but shot up $20 after Fed officials signalled only two more rate hikes this year.

Because gold is not yield-producing and investors have to rely on price appreciation for returns, the metal has a strong inverse correlation to US government bond yields which slumped on the news.

The precious metal climbed to a peak of $1,234.06/oz last Thursday in London, while gold-backed exchange traded funds attracted inflows worth $187m.

The broader macro backdrop has proved helpful for gold, as demand for the metal from the jewellery industry has been lackluster, hitting a seven-year low, according to the World Gold Council.

However, there are signs that appetite in China and India — the world’s biggest consumers of the metal — may be picking up. Chinese jewellery demand rose during the new year holiday, while in India gold imports for February were more than twice their volume last year and about 52pc above the long-term average, according to UBS.

Copper

FOLLOWING two sluggish years, copper finally made a late recovery in 2016. Optimism over President Trump’s $500bn infrastructure plans drove the metal upward.

Meanwhile, encouraging economic data from the second biggest economy and the largest copper consumer China have raised expectations of higher demand for the commodity, which in turn have led to an increase in prices.

Additionally, continued workers’ strikes at major copper mines have also helped price escalation.

With China being the world’s major buyer of copper, accounting for 46pc of total consumption, strong industrial production and fixed asset investment data are likely to signal the nation’s demand for the red metal.

The price of copper for May delivery rose roughly 0.8pc to $5,865/tonne on the New York Mercantile Exchange on Wednesday, registering four straight sessions of gains.

Copper prices also increased around 1pc on the London Metal Exchange (LME) to $5,924.50/tonne, marking a rebound after falling to $5,652/tonne last week, which was its lowest level in the last two months.

Copper rose for a fifth session last Thursday as stoppages at three of the world’s biggest mines raised supply concerns and a weaker dollar made metals cheaper for holders of foreign currencies.

In the London market, Copper rose for a fifth session on Thursday as stoppages at three of the world’s biggest mines raised supply concerns and a weaker dollar made metals cheaper for holders of foreign currencies.

The dollar sank to a four-week low against a basket of currencies after the US Federal Reserve raised interest rates for the second time in three months, as expected, but said that further increases would be gradual.

Three-month copper on the London Metal Exchange closed up 0.7pc at $5,908/tonne.

Freeport-McMoran (FCX) and Glencore (GLNCY), the second- and third-largest copper miners, respectively, expect their copper productions to fall in 2017 compared to the previous year.

Codelco, the world’s largest copper miner, expects its copper production to be flat over the next few years. The report adds, “Over the next 20 years, production should be flat at 1.6-1.7m tonnes a year.”

Mine disruptions led to copper prices growing roughly 25pc over the past six months.

Published in Dawn, Economic & Business, March 20th, 2017