Oil

Oil prices were broadly steady last Thursday. Brent crude futures LCOc1 were last down 13 cents on the day at $64.76 a barrel, while US West Texas Intermediate (WTI) crude futures CLc1 were up 1 cent at $60.97 a barrel.

Global oil demand is expected to pick up this year but supply is growing at a faster pace, leading to a rise in inventories in the first quarter of 2018, said the International Energy Agency (IEA). The oil price has moved in sync with stocks uninterruptedly for the past 99 trading days.

Looming over markets has been a relentless climb in US crude output which hit another record last week by rising to 10.38 million barrels per day, up by more than 23 per cent since mid-2016. Commercial crude inventories were up by 5m barrels, at 430.93m barrels.

Recently the Organisation of the Petroleum Exporting Countries (Opec), in a monthly report, said non-Opec producers would boost supply by 1.66m barrels per day in 2018.

“For 2018, higher growth is expected on the back of the projected increase in U.S. shale production following a better price environment not only for shale producers, but also for other countries such as Canada, the UK, Brazil and China,” Opec said.

The IEA raised its forecast for oil demand this year to 99.3m bpd from 97.8m bpd in 2017. Commercial oil inventories in industrialised OECD nations rose in January for the first time in seven months to 2.871bn barrels, 53m barrels above their five-year average, the IEA said.

Ageing fields and high production costs dragged down China’s domestic crude oil production in January and February. In the first two months of 2018, China’s crude oil production dropped by 1.9pc from the same period last year to average 3.76m bpd.

The decline so far this year could be attributed to the drop in production of China’s largest oil producer, China National Petroleum Corp (CNPC), whose production fell by 1.6pc year on year.

Petro China, the public division of China’s state giant CNPC, has become the third-largest oil and gas company globally, with a market cap exceeding Chevron’s since the start of this year.

The average market cap of Petro China since the start of the year, according to Bloomberg, has come in at $232 billion, versus $230bn for Chevron. Its Hong Kong-listed shares trade at a 33pc discount to the company’s book value. This compares with a 68-premium to book value for Exxon’s stock and a 1.34x premium to book value for Shell.

Iran’s state-run oil company has signed a $740m agreement with a Russian-Iranian consortium to develop two oil fields near the Iraqi border. Some 105m barrels of crude will be produced over a 10-year span in oil fields in Aban and West Paidar in the southwest.

Gold

Gold prices last Thursday were steady near a one-week high hit in the previous session amid political tensions between Britain and Russia, and renewed worries about a global trade war.

Spot gold was nearly flat at $1,325.06 per ounce, while US gold futures for April delivery were almost unchanged at $1,325.20 per ounce. The US dollar fell against the yen and pulled further away from a recent two-week high, while stock markets slipped broadly as lingering worries about global trade tensions weighed on investor’s appetite for risk.

A combination of factors, ranging from fading Fed rate hike expectations and the latest White House exits, kept exerting downward pressure on the dollar and benefitted dollar-denominated commodities — like gold.

Adding to this, the US President Donald Trump’s plan to impose tariffs on China, reviving global trade war fears, provided an additional boost and lifted the precious metal.

Physical gold held by major exchange-traded funds fell by 5.1 tonnes in February compared with the previous month amid increased volatility and falling prices, the World Gold Council said recently. Gold-backed ETFs collectively held 2,398.4 tonnes at the end of February, worth $101.4bn, the WGC said in a report.

“Flows were negative as the price of gold decreased and its volatility increased. This was reflected by higher trading volumes globally in ETFs and futures,” WGC analysts said.

Global ETF inflows were dominated by Asian-listed funds, which added 7.9 tonnes worth $318m to their holdings in February, bringing total holdings to 90.7 tonnes, according to the WGC.

The National Bank of Hungary announced it is bringing home the country’s 100,000 ounces (3 tonnes) of gold reserves from London. The decision to repatriate gold reserves, in total worth some 33bn Hungarian forint ($130m), was for safety reasons, in case of a geopolitical crisis.

It is also in line with international trends as storage of gold reserves out of the country is now considered risky by many central banks, including Austrian, German and Dutch regulators. They have recently decided to repatriate their gold reserves.

The US and Germany are currently the world’s largest holders of gold. Hungary has one of the tiniest amounts compared with other Central European countries. The Central Bank of Russia boosted its holdings of gold by almost 20 tonnes last month, with reserves reaching 1,857 tonnes.

Russia is now among the top five gold holders after surpassing China, which reportedly holds 1,843 tonnes. Over the last 15 years, Moscow and Beijing have been aggressively accumulating gold reserves to cut their dependence on the US dollar.

Germany is in second place with 3,374 tonnes, but a large portion of its gold reserves are still held in the US. Over 50pc of Germany’s gold reserves are now in Frankfurt. The remainder is stored in London and New York.

The International Monetary Fund owns 2,814 tonnes of gold. France is the fourth-biggest bullion holder. Russia is also the third-largest producer of gold. The government has purchased two-thirds of all the gold mined in country, buying it from local banks, as the Kremlin sees the precious metal as a safe haven.

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