Oil

OIL prices dropped last Wednesday after data showed that US crude stockpiles had grown more than expected, further stoking supply concerns and setting the commodity up to snap its five-month winning streak.

A barrel of Brent, the international benchmark, was down 1.17 per cent to $65.75. West Texas Intermediate (WTI), the US standard, fell 1.2pc to $62.27.

US crude inventories rose by 3 million barrels in the week ending Feb 23, compared with analyst expectations for a build of 2.1m barrels, weekly data by the Energy Information Administration (EIA) showed.

Oil prices were little changed last Thursday after falling in the previous two sessions as investors shied away from riskier assets amid volatile equity markets and the US dollar gained, limiting overall interest in commodities.

U.S. WTI crude for April delivery CLc1 was up 8 cents at $61.72 a barrel after settling down 2.2pc in the previous session.

Brent crude LCOc1 for May delivery, the new front-month contract, was down 3 cents at $64.70. The April contract expired on Wednesday down 1.3pc.

Both benchmark contracts fell nearly five per cent in February, the first monthly decline in six months.

Gasoline stocks also rose by 2.5m barrels against expectations for a 190,000-barrel drop, which pushed gasoline futures sharply lower. Distillate stockpiles, which include diesel and heating oil, fell by 1m barrels, versus expectations for a 709,000-barrel drop.

Soaring US crude production has also kept a lid on oil prices this year, even though producers, led by the Organisation of the Petroleum Exporting Countries (Opec) and Russia, have reduced output.

Opec is reducing output by about 1.2m bpd as part of a deal with Russia and other non-Opec producers. The pact will run until the end of 2018.

Opec pumped 32.28m barrels per day in February, the survey found, down 70,000 bpd from January. The February total is the lowest since April 2017, according to Reuters surveys.

Adherence by producers included in the deal rose to 149pc of agreed cuts from a revised 144pc in January, the survey found, suggesting a jump in prices early this year to their highest since 2014 has not weakened commitment.

Oil in January topped $71 a barrel for the first time since 2014, and was trading above $66 on Wednesday.

The United States will overtake Russia as the world’s biggest oil producer by 2019 at the latest, the International Energy Agency said recently, as the country’s shale oil boom continues to upend global markets.

The EIA said early this month that U.S. output would exceed 11m bpd by late 2018.

Iraq’s oil production could begin to rise after a tentative deal was agreed to by the Kurdish Regional Government and the central government in Baghdad, to lead to the restart of oil flows through a Kurdish pipeline to Turkey.

Baghdad demands that oil exported to Turkey — and on to the global market via the Turkish Mediterranean port in Ceyhan — do so under the auspices of the Iraqi government.

After an Iraqi oil pipeline to Turkey was damaged years ago by ISIS, however, the Kurds built their own pipeline and exported oil on their own.

Gold

Gold prices fell to a three-week low on Thursday, weighed down by a stronger dollar. Spot gold was 0.3pc lower at $1,313.81 an ounce, after touching $1,312.26, the lowest since Feb 9. Prices have fallen over 1pc so far this week. US gold futures were down 0.2pc at $1,314.7 per ounce.

The US currency, which in February recorded its best monthly performance since November 2016, has been bolstered by Federal Reserve Chairman’s hawkish stance on the US economy that fuelled expectations of interest rates being raised four times this year rather than three.

Higher interest rates tend to boost the dollar and push bond yields up, making greenback denominated, and non-yielding gold more expensive for holders of other currencies.

Tightening monetary policy tends to weigh on gold because it increases the opportunity cost of holding non-yielding assets while boosting the dollar, in which the metal is priced.

Gold is on track for a second straight week of losses, having fallen 1.3pc since the preceding week, while the metal ended February down two per cent to snap three months of gains.

The dollar has risen to its highest since mid-January, with the euro also under pressure from benign eurozone inflation data that dented expectations that the European Central Bank will curb its stimulus programme.

A late rally in physical gold buying failed to prevent a drop in full-year demand last year to its lowest since 2009, the World Gold Council (WGC) said recently, as weaker fund investment outstripped a bump in jewellery consumption.

Global gold demand slid seven per cent in 2017 to 4,071.7 tonnes, an eight-year low, the WGC said in its latest quarterly demand trends report.

Investment demand fell by nearly a quarter, driven by reduced inflows into bullion-backed exchange traded funds, the WGC said.

Jewellery demand saw its first annual rise since 2013 despite a 13pc increase in gold prices.

Indian jewellery demand rose 12pc, posting its strongest fourth quarter since the WGC started compiling data in 2000. In China, jewellery demand rose three per cent last year, its first annual increase since 2013.

Total Chinese buying stood at 953.3 tonnes last year, while Indian demand reached 726.9 tonnes, the WGC said. It expects to see buying at similar levels this year, with Indian demand seen at 700-800 tonnes, and Chinese off-take at 900-1,000 tonnes.

Central banks also trimmed their overall purchases for a fourth straight year. A drop in demand in the fourth quarter was due entirely to Venezuela’s $1.7bn swap deal with Deutsche Bank elapsing in October, the WGC said.

This represents 45 tonnes of gold, it said, and was accounted for in the fourth-quarter figures as a sale.

Demand from Russia and Kazakhstan stayed buoyant, while the market also saw a rise in demand from Turkey.

Published in Dawn, The Business and Finance Weekly, March 5th, 2018