OIL surged above $64 a barrel to the highest level in two years last Monday after Saudi Arabia’s crackdown on dozens of princes and business tycoons raised concerns about stability and policymaking in the world’s largest crude exporter.

The sharp move in Brent crude, the international benchmark, came shortly after Saudi officials warned that they had found “widespread corruption” among the suspects detained in the weekend sweep and threatened to freeze assets of those being held.

Brent settled for the day at $64.27, a rise of $2.20, taking its gains since June to more than 40 per cent, a move likely to be closely watched by central banks already monitoring rising inflation. US benchmark West Texas Intermediate (WTI) hit $57.41 a barrel, its highest in two years, before settling the day at $57.35, up $1.71.

Oil prices steadied just below two-year highs on Thursday, supported by supply cuts by major exporters, but analysts said the market could be vulnerable to a sell-off after several months of gains.

Brent crude oil LCOc1 was up 20 cents at $63.69 a barrel. On Tuesday, Brent reached an intra-day high of $64.65, its highest since June 2015.

US light crude CLc1 was 15 cents higher at $56.96, just shy of this week’s more than two-year high of $57.69 a barrel.

Oil’s move above $60 a barrel has been supported by the strongest economic growth globally since the financial crisis, with consumption booming in both developed and emerging markets.

The Organisation of the Petroleum Exporting Countries (Opec) has also been cutting output in co-ordination with Russia and other large producers since January, removing about 1.8m barrels a day, or roughly 2pc of global supply from the market, helping to draw down surplus oil inventories that have built up since 2014. They are expected to extend the deal to the end of 2018 when they meet on Nov 30.

US shale drillers, whose fast-growing output helped bring the $100 oil era to a close in 2014, have also shown signs of choking back expansion, with companies becoming more focused on delivering higher profits rather than simply drilling more wells.

In the Singapore market, oil prices fell last Wednesday as Chinese crude imports slipped to their lowest level in a year, although traders said the overall market remains well supported on the back of Opec-led supply cuts.

China’s October crude oil imports slid to their lowest monthly level in 13 months, tumbling from a near record in September, as buying from independent refiners slowed, with their import quotas draining away.

Data from the General Adminis­tration of Customs showed that imports stood at 31.03 million tonnes in October, or 7.3m barrels per day (bpd), up from the same month a year earlier but well below about 9m bpd in September. That’s their lowest level since October 2016.

The import data came as China’s Commerce Ministry set its 2018 crude oil import quota for non-state companies at 142.42m tonnes, an increase of more than 50pc, with markets expecting China to buy more crude this year.

Gold

Gold prices edged higher last Thursday, after marking a near three-week high in the previous session, as the dollar eased while palladium hit a fresh peak since February 2001.

Spot gold rose 0.2pc at $1,283.91 per ounce. A day earlier it rose 0.4pc and touched its highest since Oct 20 at $1,287.13 an ounce.

US gold futures for December delivery were up 0.1pc at $1284.90.

Rising US interest rates tend to boost the dollar and lift the opportunity cost of holding non-yielding assets such as gold.

In physical demand, industry officials and analysts warned that India’s gold imports in the last quarter of 2017 could drop 25pc from a year ago due to weak demand during key festivals and as investors seek better returns from riskier assets like equities.

In other precious metals, palladium was up 2.4pc at $1,016 an ounce, after hitting its highest since 2001 at $1019

Palladium’s premium over platinum hit $85 per ounce, also its highest since May 2001. In September, palladium became more valuable than platinum for the first time in 16 years.

The metal, mostly used for auto catalysts to clean pollution from exhaust fumes, has rallied on an expected supply deficit and higher demand in the automobile market. Much of the demand came from China and parts of the United States and the Caribbean where vehicles were damaged by hurricanes.

Meanwhile, silver was up 0.9pc at $17.11 an ounce while platinum was up 1.2pc at $933.60 an ounce.

Gold demand in India tumbled 22pc in 2016 to 674 tonnes from 863 tonnes reported in 2015, according to the World Gold Council (WGC). In the short-term, the WGC estimates to see gold demand staying around 650 to 750 tonnes in 2017 and recovering more next year.

Gold demand has largely been hit by the numerous laws passed by the Indian government in the last couple of years that might have discouraged some consumers from purchasing gold, according to World Gold Council India.

One of the most recent measures has been the introduction of 3pc GST that became effective on July 1 and aims to help with traceability of transactions.

In another move, the Indian government banned all gold product exports that are above 22-carat purity level in an attempt to close a tax loophole. The new rules impact items such as jewellery, coins and medals.

Demand for gold slumped to an eight-year low in the third quarter as the prospect of higher US interest rates and tighter monetary policy resulted in less buying from institutional investors.

Spurred by concerns over lofty equity market valuations and geopolitical tensions with North Korea, gold climbed to a high of $1,350 an ounce in September. The metal has subsequently declined almost 5pc as short-dated US government yields have risen to their highest level since 2008 as the bond market expects a Fed rate tightening next month.

That makes gold, a non-yielding asset, less attractive to investors. Gold was trading at $1,285 an ounce on Wednesday.

While Indian demand was unlikely to bounce back quickly, there were reasons to be optimistic on the outlook for gold demand, because of buying from central banks.

Led by Russia and Turkey, central banks added 111 tonnes to their gold reserves in third quarter, 25pc more than in the same period in 2016.

Published in Dawn, The Business and Finance Weekly, November 12th, 2017