World commodities

Published August 21, 2017

Oil

Oil prices edged up last Thursday, clawing back some ground after losses in the previous session.

Traders said the market was range-bound as falling crude inventories provided price support while high output was capping gains.

Brent crude futures LCOc1 were at $50.44 per barrel at 0543 GMT, up 17 cents, or 0.3 per cent, from their last close.

US West Texas Intermediate (WTI) crude futures CLc1 were at $46.84 a barrel, up six cents, or 0.1pc. The slight gains followed a more than 1pc fall in the previous session.

Energy Information Administration (EIA) data on Wednesday showed that commercial US crude oil stocks C-STK-T-EIA have fallen by almost 13pc from their peaks in March to 466.5 million barrels. Stocks are now lower than in 2016.

“The pace of the declines indicates that the Opec production cuts are having an effect, although the current oil price suggests that the market is sceptical about the longer-term prospects for rebalancing of the oil market,” said William O’Loughlin, analyst at Australia’s Rivkin Securities.

The soaring US output undermines efforts by the Organisation of the Petroleum Exporting Countries (Opec) which, together with non-Opec producers like Russia, has pledged to restrict output by 1.8m barrels per day (bpd) between January this year and March 2018.

Brent prices are down by almost 12pc since the start of the cuts in January.

The subdued market sentiment also has roots on the demand side. Oil producers have enjoyed years of rocketing demand, fuelled largely by China’s voracious thirst coming from over 2m new car sales a month.

Oil prices rose early on Wednesday on a fall in US crude inventories, although analysts said that markets were still being weighed down by general oversupply.

Brent crude futures, the international benchmark for oil prices, were at $51.01 per barrel at 0023 GMT, up 21 cents, or 0.4pc, from their last close.

In China, state-owned China National Petroleum Corporation said last Wednesday that gasoline demand would likely peak around 2025 and outright oil consumption would top out around 2030.

This means that the oil demand from the world’s two biggest consumers may soon stall, while consumption has already peaked in Europe and Japan.

Gold

Gold prices last Tuesday suffered their steepest one-day drop in nearly six weeks, as data on retail sales and US manufacturing came in better than expected and easing geopolitical tensions between North Korea and the US undercut haven demand for the precious metal.

December gold GCZ7 declined $10.70, or 0.8pc, to settle at $1,279.70 an ounce, after settling down 0.3pc on Monday. Prices saw the largest daily dollar and percentage decline since July 7, according to FactSet data.

Gold prices are set to jump to a four-year high of $1,400 an ounce by the end of the year over mounting tensions between North Korea and the US, and surging demand in the world’s biggest consumers, according to the head of precious metals at a Russian investment bank.

Bullion could rise to $1,360 within three months before climbing higher, fuelled by global political risks and buying from China and India, said Evgeny Ananiev at VTB Capital JSC, the investment-banking unit of Russia’s second-largest lender VTB Group.

Prices have climbed 12pc this year, driven by worries over a potential nuclear conflict between the US and North Korea.

Spot gold slipped 0.2pc to $1,269.11 per ounce by 0712 GMT, following two sessions of falls. US gold futures for December delivery were down about 0.4pc at $1,274.90 an ounce.

The bullish dollar is shifting the focus away from the safe havens. The increasing odds of the US interest rate hike could push the gold price below the $1,250 level and this could happen if the upcoming Federal Open Market Committee minutes deliver some hawkish tone.

Higher interest rates could boost the dollar, making commodities priced in the greenback more expensive for holders of other currencies.

Copper

Copper, aluminium and zinc rose to multi-year highs last Thursday, leading a broad-based rally in metals, on expectations that China’s reform of its metals industry will curb supply against a background of robust demand.

A weaker dollar has added heat to the move in metals, but the broader story relies on China’s property sector where despite moves from Beijing to rein in its overheated property sector, demand remains robust, said analyst Daniel Morgan of UBS in Sydney.

London Metal Exchange copper rose to its highest since Nov 27, 2014 at $6,580 a tonne, before paring gains to $6,556 a tonne, still up 0.4pc and extending the prior session’s 2.4pc rally. Copper prices are up 18pc this year.

Copper futures trading on the Comex market in New York raced ahead on Wednesday as global supply disruptions came back into view and large-scale speculators place huge bets on rising prices.

In massive volumes of more than three billion pounds by lunchtime copper for delivery in September jumped to a high of $2.9795 a pound ($6,569 per tonne), up more than 3pc from Tuesday’s close to the highest since end-November 2014.

Copper has gained 18pc this year so far. It has recovered 54pc in value after falling to six-year lows to below $2 a pound in January last year.

There are new mines opening up in Peru and 5pc of global copper comes from Australia, China, Africa, and the US combined.

BHP Billiton has recently an­nounced it will spend $600m upgrading and expanding the mine and its infrastructure, with its eye firmly on growing demand, and price, for copper.

Published in Dawn, The Business and Finance Weekly, August 21st, 2017

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