OIL

OIL prices rose last Thursday, with benchmark Brent crude trading comfortably above $50 a barrel after a fall in US inventories and a bigger-than-expected cut in Saudi supplies to Asia.

Brent LCOc1 was 70 cents higher at $50.92/barrel US light crude oil CLc1 was up 75 cents at $48.08.

The Opec and other producers including Russia have agreed to cut output by almost 1.8mbpd during the first half of the year to try to reduce a global fuel glut.

Opec will meet on May 25 to decide on production policy for the second half of 2017, and most analysts expect the group to extend cuts until at least the end of the year.

Inventories of US crude fell by 5.25m barrels in the week ended May 5, according to the EIA. That topped forecasts for a draw of 1.9m barrels. This was the largest streak of back-to-back declines in US oil stocks since September.

The larger-than-expected drop came alongside weaker imports, which averaged over 7.6m barrels per day last week, down by 644,000 barrels per day from the previous week. At 522.5m barrels, US crude oil inventories are near record levels.

World stocks held near all-time highs on Thursday, helped by a rebound in energy shares as oil prices rose after US fuel inventories declined and Saudi Arabia cut supplies of crude to Asia more than expected.

MSCI’s gauge of global stock markets was up 0.1 percent, bringing their gains for the year to nearly 10pc.

European shares underperformed as investors looked to lock in gains after their strong run so far this year. Government bond yields rose as rising oil prices reinforced expectations inflation would pick up.

Reuters reported last Tuesday that state-owned Saudi Aramco will reduce oil supplies to Asian customers by about 7m barrels in June.

Royal Dutch Shell on Wednesday urged oil pricing agency S&P Global Platts to protect the dated Brent crude benchmark from declining North Sea supply by including other grades, such as Russian Urals, in its price-setting process.

The suggestion marks a shift from two years ago when Shell said adding Urals would not be ‘worth the trouble’.

The benchmark, based on light North Sea crude grades, is used to price about two-thirds of the world’s oil but a decline in North Sea output has led to concerns that physical volumes could become too thin and prone to large price swings.

Platts announced it would add a fifth grade, Troll, to the benchmark slate from January 2018 but Shell says more must be added in the next two to three years and considers Russian medium sour Urals as a top candidate.

The benchmark is now made up of Brent, Forties, Oseberg, and Ekofisk, known as BFOE.

GOLD

GOLD dropped to an eight-week low as safe-haven demand continues to fade in the wake of Emmanuel Macron’s victory in the French election and as expectations for tighter US monetary policy lifted bond yields.

Revived appetite for riskier assets also pushed global stocks to record highs, while the US dollar index rallied.

Rising stocks and higher bond yields raise the opportunity cost of holding non-yielding bullion, while a stronger dollar makes gold more expensive for holders of other currencies.

The spot gold price was down 0.8pc at $1,215.81/ounce, after falling below its 100-day moving average to $1,214.39, the lowest since March 15. US gold futures settled down 0.9pc at $1,216.10.

The investors’ sentiment was dampened after a report from the World Gold Council (WGC) showed that global demand was down 18pc from a year ago. Purchases by central banks slowed 27pc from a year ago to 76.3 tonnes in the first quarter of this year.

Meanwhile inflows into gold-backed ETF’s declined by 68pc to 109.1 tonnes from a year ago, and overall investment demand fell 34pc.

Despite the recent sell-off, gold prices are up more than 7pc so far this year. Some analysts caution that it could slip back below $1,200/troy oz by the end of the second quarter.

Gold demand in India could be muted in the second half of 2017, as the rollout of a new national sales tax from July is expected to dent appetite in the world’s second-biggest consumer. But sales are likely to be robust during the first six months of the year, the WGC said.

Gold consumption in the first quarter of 2017 rose 15pc to 123.5 tonnes on pent-up demand from jewelers as retail consumers ramped up purchases for weddings, the WGC said in a report.

The WGC kept its forecast for India’s full-year demand at 650 tonnes to 750 tonnes, lower than a 10-year average of 845 tonnes, but just above last year’s level.

COPPER

IN the London market, copper prices climbed to a one-week high last Thursday as funds cut bearish bets, but the sustainability of gains will depend on industrial activity and investment data from top consumer, China, next week.

Benchmark copper on the London Metal Exchange was untraded in official rings, but bid up 1.8 pc at $5,601 a tonne after touching $5,627.50, its highest since May 3.

China accounts for nearly half of global copper consumption estimated at 23m tonnes this year. Industrial output is expected to have risen by 7.1pc in April, slowing from 7.6pc in March, when it rose the fastest on a yearly basis since December 2014.

The latest report by the International Copper Study Group which includes full year 2016 estimates shows world mine copper production jumped by 5.3pc, or 1m tonnes last year to 20.16m tonnes.

According to the report the increase was mainly due to a 38pc (650,000 tonnes copper) rise in Peruvian concentrate output that benefitted from new and expanded capacity brought on stream in the last two years; a recovery in production levels in Canada, Indonesia and the US, and expanded capacity in Mexico, and low frequency of supply disruptions due to strikes, accidents or adverse weather conditions.

However overall growth was partially offset by a 3.8pc (220,000 tonnes) decline in production in Chile, the world’s biggest copper mine producer, and a 4.5pc decline in the Democratic Republic of the Congo where output is being constrained by temporary production cuts.

On a regional basis, production rose by 6pc in the Americas and 11.5pc in Asia but declined by 3.5pc in Africa while remaining essentially unchanged in Europe and Oceania.

Published in Dawn, The Business and Finance Weekly, May 15th, 2017