Oil

BRENT crude oil rose above $50 per barrel in the London market for the first time since early June on Thursday, adding to gains made the previous session when falling US crude and oil product inventories lifted the market.

Brent futures LCOc1, the international benchmark for oil prices, stood at $50.10, up 40 cents from their last settlement. US West Texas Intermediate (WTI) crude futures CLc1 were at $47.42 per barrel, a rise of 30 cents.

Both benchmarks were trading at their highest since June 7 after rising more than 1.5 per cent in the previous session on a report showing US crude and fuel inventories fell last week.

In the Singapore market, oil prices held steady last Thursday following solid gains the previous day when falling US fuel inventories lifted the market.

However, Brent crude oil prices remain below the key $50 per barrel mark on concerns about high supplies from producer club Opec (Organisa­tion of the Petroleum Exporting Countries) despite a pledge to cut output in a bid to tighten the market.

Brent crude futures were at $49.67 per barrel, just three cents below their last settlement. WTI crude futures were at $47.08 per barrel, four cents below their last close.

The rebalancing of the oil market is taking too long, the International Energy Agency (IEA) said in its Oil Market Report recently. “Brent prices have closed below $50/bbl each day since early June and few investors expect a recovery anytime soon,” the IEA said.

According to the IEA, compliance among Opec members slipped in June to its lowest level — 78pc — since the start of the deal, as not only exempt Libya and Nigeria pumped more, but also Saudi Arabia. Although the kingdom, the Opec’s biggest producer, stayed within the limits, it did not comply with its share of the cuts as much as it had done in previous months, according to Opec’s secondary sources.

Saudi Arabia has been progressively reducing its bloated domestic stocks of crude. Saudi Arabia’s domestic crude stocks declined in 16 of the 19 months between November 2015 and May 2017 according to government data reported to the Joint Organisations Data Initiative.

Domestic stocks fell to just 259m barrels at the end of May, which was the lowest level since January 2012, according to updated figures published last week. Stocks were down by 30m barrels compared with the same month a year earlier and are now down by 71m barrels from their peak in October 2015.

Ecuador has become the first country to publicly admit it will not meet Opec’s production curbs, saying it needs to pump more oil to address its fiscal deficit. The South American country’s promised cut of 26,000 barrels of oil a day is a tiny drop in the 1.8m bpd that the cartel recently agreed to curb until early 2018, but the decision is still the first crack in the deal’s unity.

Gold

In the London market, gold prices recovered lost ground to edge higher last Thursday after European Central Bank (ECB) said its policymakers would discuss potential changes to the bank’s bond-buying scheme in the autumn, lifting the euro to session highs.

The bank said the policymakers were unanimous in choosing not to change their guidance for monetary policy, and not to set a date for discussing changes to its stimulus programme.

That was enough to spark a recovery in the euro after early losses, lifting gold prices. Spot gold was up 0.1pc at $1,241.10 an ounce at 1240 GMT, off an earlier low of $1,234.74.

The maintenance of loose monetary policy in the euro zone could be seen as either positive or negative for gold, depending on whether demand responds positively to a persistently low opportunity cost of holding the non-yielding metal or more negatively to a weaker euro.

The ultra-low interest rates in place since the last decade’s global financial crisis have been a key factor in supporting gold prices in recent years.

With the end to that unprecedented monetary stimulus now within sight, financial investors are nervously trying to gauge how big central banks around the globe will unwind unconventional policies that have kept borrowing costs ultra-low.

Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 5.3 tonnes last Wednesday to 816.1 tonnes, the lowest level since early February. Its reserves have declined more than 12 tonnes last week.

In the New York and London markets, gold slipped back towards $1,240 an ounce on last Wednesday, after three straight days of gains, as the dollar recovered slightly from a 10-month low.

Bullion held below Tuesday’s 2½ week high, when prices were buoyed by the failure of US President Donald Trump’s healthcare bill to pass the US Senate and by waning expectations for further interest rate hikes from the Federal Reserve this year.

The US dollar index rose 0.2pc, with the euro down 0.3pc, however, taking upward pressure off gold.

Spot gold was down 0.05pc at $1,241.35 an ounce, while US gold futures for August delivery closed little changed, up 0.01pc at $1,242.

Expectations that US monetary policy is on a tightening path kept gold hemmed into a narrow range in the last quarter after a strong start to the year. Signs that central banks in Europe and elsewhere are also turning away from ultra-loose monetary policies have also weighed on the precious metal.

Gold is highly sensitive to rising interest rates, as this increases the opportunity cost of holding non-yielding bullion. Rising US rates also lift the dollar, in which gold is priced.

The London Metal Exchange is looking to its first gold futures contract in 30 years as a blueprint for an overhaul of the 140-year-old exchange, which has been struggling in the face of fierce competition and tough market conditions.

The LME’s gold futures contract saw good volume in its first week of trading, with a total of 25,590 lots, or more than 2.5m troy ounces of the metal traded, surprising many who thought the contract would fail to gain traction.

Bought by Hong Kong Exchanges & Clearing for $2.2bn in 2012, the LME has suffered a decline in trading volumes because of tough market conditions that saw many banks and funds exit metals trading.

Published in Dawn, The Business and Finance Weekly, July 24th, 2017

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