Oil

In the Singapore market, oil prices last Thursday extended gains from the previous session, pushed up by a weak dollar and comments from Saudi Arabia that it would rather see an undersupplied market than end a deal with the Organisation of the Petroleum Exporting Countries (Opec) and Russia to withhold production.

US West Texas Intermediate (WTI) crude futures were at $61.02 a barrel, up 42 cents, or 0.7 per cent from their last settlement, adding to a 2.4pc gain in the previous session. Brent crude futures were at $64.64 per barrel, up 28 cents, or 0.4pc, extending Wednesday’s 2.6pc rise.

Prices rose on the back of ongoing weakness in the US-dollar against other leading currencies, further supported by rising stock markets, traders said.

A weaker greenback potentially supports consumption of dollar-denominated commodities as it makes fuel and raw materials cheaper for countries using other currencies.

More fundamentally, oil markets got a push from comments by Saudi Arabia, the de-facto leader of the Opec, voicing support for production cuts backed by Opec and other producers including Russia since 2017 in an effort to tighten the market and prop up prices.

Threatening to undermine the Opec-led effort to tighten markets is soaring production in the United States, which is not participating in the pact to cut.

In the Singapore market, oil dipped last Wednesday, squeezed by lingering oversupply including rising US inventories and ample physical flows, though the prospect of Saudi output dropping in March, economic growth hopes and a weaker dollar all combined to cap losses.

WTI crude futures CLc1 were at $59.06 a barrel, down 13 cents from their last settlement. WTI was trading above $65 in early February. Brent crude futures LCOc1 were at $62.68 per barrel, down 4 cents.

The Saudi energy ministry said that Saudi Aramco’s crude output in March will be 100,000 barrels per day (bpd) below its February level while exports would be kept below 7 million bpd.

The American Petroleum Institute said last Tuesday that US crude inventories rose by 3.9m barrels in the week to Feb 9, to 422.4m.

That was largely due to soaring US crude production, which has jumped by over 20pc since mid-2016 to more than 10m bpd, surpassing that of top exporter Saudi Arabia and coming within reach of Russia, the world’s biggest producer.

US crude is also increasingly appearing on global markets, and more is set to come as the Louisiana Offshore Oil Port starts testing supertankers for exports.

The United States will become a net oil and gas exporter by 2022, the Energy Information Administration (EIA) said in its Annual Energy Outlook. Slower domestic demand, along with growth in natural gas, oil, and oil product production will drive the transformation, the EIA said.

Oil and gas production will also continue to grow along with renewables, although oil production growth will stagnate around 2032, according to the EIA forecast. Higher oil prices, the EIA notes, will motivate higher exports and lower local consumption, so the country could become a net oil and gas exporter even before 2022 if prices are high enough.

Gold

Gold prices rose further last Thursday, supported by a weaker dollar as investors bought the yellow metal as a hedge against inflation after a faster-than-expected rise in US consumer prices last month.

Spot gold was up 0.3pc at $1,354.55 an ounce, and headed for a fourth straight session of gains. It hit its highest since Jan. 26 at $1,355.50 on Wednesday, and has gained nearly 4pc since it dropped to a one-month low last week. US gold futures were down 0.1pc at $1,357.2 per ounce on Thursday.

The US Labour Department said its Consumer Price Index increased 0.5pc in January as households paid more for gasoline, rental accommodation and healthcare, raising pressure on new Federal Reserve chief Jerome Powell to prevent a possible overheating of the economy.

Inflation fears boost gold, which is seen as a safe haven against rising prices. But expectations that the Fed will raise interest rates to fight inflation make gold less attractive since it is not interest-yielding.

Gold last Wednesday enjoyed its best trading day since June 24, 2016 when financial markets were shocked by Britain voting to leave the European Union.

The most active gold futures contract on the Comex market in New York touched a high of $1,358.60 an ounce in midday trade, up more than 2pc or nearly $30 an ounce compared to Tuesday’s settlement after inflation data in the US came in higher than expectations. Volumes were massive with 39.4m ounces of April delivery gold traded.

The US dollar dropped back on Wednesday and is now down 12pc over the past year against the country’s major trading partners. The yield on US benchmark 10 year Treasury rose to a four year high of 2.9pc.

Gold has gained $112 an ounce since mid-December and despite culling positions in recent weeks large-scale speculators on derivatives markets like hedge funds have nearly doubled net long positions — bets that gold will be more expensive in future — since then.

Retail and institutional investment in gold-backed exchange traded funds (ETFs) continues to grow. New data from the World Gold Council shows ETF vaults now hold around 2,396 tonnes or 77m troy ounces after net inflows in January of 27.6 tonnes, growing total global assets under management by 5pc.

So far this year North American gold investors have the led the charge with funds adding 21.5 tonnes worth $940m during the month or three-quarters of the global total. European funds, added 7.6 tonnes, while Asian funds had net redemptions equal to 1.4 tonnes during the month.

Last Thursday, among other precious metals, silver was up 0.2pc at $16.91 an ounce after earlier hitting a more than one-week high of $16.94. Palladium was 0.7pc higher at $1,007.75, after earlier hitting a one-week top of $1,009.30. Platinum was up 0.2pc at $998.74, after earlier hitting $1,002.40.

Published in Dawn, The Business and Finance Weekly, February 19th, 2018