Oil

In the Singapore market, oil prices rose last Thursday on a reported decline in US crude inventories, and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure.

However, prices stayed below recent three-year highs as fuel supplies remain ample and as refineries scaled back operations.

Brent crude futures were at $69.56, up 18 cents, or 0.3 per cent, from their last close. Last Monday, they hit their highest since December, 2014 at $70.37 a barrel.

US West Texas Intermediate (WTI) crude futures were at $64.25 a barrel, up 28 cents, or 0.4pc, from their last settlement.

Despite the decline, overall oil markets remained well supported on the back of tightening supply and strong global demand. The tighter fundamentals lifted both crude futures benchmarks about 13pc above levels in early December, helped by production curbs by OPEC and Russia, as well as by healthy demand growth.

Brent crude futures LCOc1 were at $69.07 a barrel, down from a high of $69.37 earlier in the day and 18 cents below their last close.

Big investment banks are raising their price targets for oil — or warning they may soon need to — as crude futures hit levels not seen since the early days of a slump in December 2014.

Bank of America Merrill Lynch and Morgan Stanley both upped their forecasts for crude prices this week, while Goldman Sachs said the risk of prices overshooting its current target is mounting.

The banks says the long-oversupplied oil market is tightening up more quickly than expected as global economic growth fuels demand and output cuts by Opec, Russia and several other producers eat into the world’s crude stockpiles. The 14-member Opec cartel has also boasted better adherence to output limits than in the past, according to analysts.

Merrill Lynch analysts said they now expect the oil market to be undersupplied by about 430,000 barrels a day in 2018, up from their prior forecast for a 100,000-barrel-per-day deficit.

The bank now sees Brent averaging $64 a barrel in 2018, versus an earlier estimate for $56 a barrel. Merrill also raised its outlook for US crude to $60 a barrel from $52.

Goldman Sachs is not ready to raise its $62 target on Brent and $57.50 forecast for US crude in 2018, but says there’s a growing risk that global inventories will fall too quickly and push up prices.

India will begin the auction of 55 oil and gas exploration blocks under new rules, the country’s first licensing round after eight years, as it seeks to unlock its vast hydrocarbon resources, the upstream regulator said.

The world’s third biggest oil importer last year eased rules and allowed companies to carve out areas where they want to drill to attract greater interest and quickly monetise as much as 220 billion barrels of oil and gas resources.

The identified blocks, spread over a 59,000 sq. km area, will now go under the hammer with some advantages given to companies that first identified the area.

India is estimated to hold 42 billion tonnes or 315 billion barrels of oil and gas resources.

Gold

In the New York market, gold prices hovered near four-month highs last Wednesday as the US dollar slipped against a basket of currencies.

In see-saw trading, the dollar had risen early against the euro as the single currency backed away from a three-year high. But the greenback later slipped.

Spot gold was flat, last up 0.1pc at $1,339.44 an ounce.

US gold futures for February delivery settled up $2.10, or 0.2pc, at $1,339.20 per ounce.

The price of gold has risen by eight per cent since mid-December, lifted as the dollar weakened to a three-year low against a basket of major currencies.

Gold demand is set to jump this year thanks to government policies targeted at transparency and economic growth, the World Gold Council said recently in its annual outlook report.

In particular, the industry body believes that gold will maintain its relevance as a strategic asset in 2018.

A confluence of four key factors in the global market would underpin the gold price in 2018 after a 13.5pc increase in the dollar price of the metal in 2017, the highest jump since 2010, according to the World Gold Council.

The factors picked out by the market development body, include higher global economic growth, interest rate hikes and restructuring of the US balance sheet, overheated equity markets and increased access to gold through a variety of investment platforms.

Income growth also spurs savings, helping increase demand for gold bars and coins.

Other factors that would steer the gold price and affect the global financial markets included the normalising of global economic growth, with expanding US and EU economies; and the switching of the Chinese economy from investment-driven growth to consumption-led growth.

With improved economies, many major central banks would tighten monetary policies, raising interest rates, and stop pouring billions of dollars into their economies through quantitative easing. While higher interest rates are generally negative for gold, the council said market volatility could increase, which would send investors into gold as a safe-haven asset.

One major factor that is weighing heavy on gold investors is the prospect of higher interest rates as the Federal Reserve plans to raise interest rates three times in 2018 and continue the reduction of its massive balance sheet.

Russia produced 227.89 tonnes of gold in the first nine months of 2017, up from 214.15 tonnes in the same period in 2016, the finance ministry said. Production for the period included 188.38 tonnes of mined gold compared with 176.49 tonnes a year ago.

Chinese demand for physical gold investment surged in the first three-quarters of 2017 while Americans ditched the shiny yellow metal for increased bets in the crypto mania and stock market bubble market.

Published in Dawn, The Business and Finance Weekly, January 22nd, 2018