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World commodities

April 16, 2018

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Oil prices held steady on Thursday, remaining close to highs last reached in late 2014 on tensions over Syria and shrinking global oil inventories.

Brent crude futures settled at $72.02 a barrel, down four cents. US WTI crude futures were up 25 cents at $67.07. Prices for both climbed in post-settlement trading.

Oil prices jumped last Wednesday to their highest level since late 2014 after Saudi Arabia said it intercepted missiles over Riyadh and US President Donald Trump warned of military action in Syria, both of which raised concerns about possible supply disruptions.

Some fundamental signals also supported prices. The Organisation of the Petroleum Exporting Countries said the global oil stocks surplus was close to evaporating due to healthy demand and its own supply cuts.

The group is producing oil below its targets, meaning the world needs to use stocks to meet rising demand. Opec said in its monthly report oil stocks in the developed world fell by 17.4 million barrels in February to 2.854 billion barrels, around 43m barrels above the latest five-year average.

Concerns over the missile launch and rising tension between the US and Russia over an alleged chemical attack in Syria caused Brent crude to rise by more than $2 a barrel to $73.09 on Wednesday.

Brent crude, the international benchmark for oil prices, has increased by nine per cent in the past three days.

Saudi Aramco operates a 400,000-barrel-per-day refinery in Jizan and the state oil company is leading the construction of a new economic zone on the Red Sea coasts.

Continuing concern over a prolonged trade dispute between the United States and China also kept markets on edge.

US crude oil inventories rose by 3.3m barrels to 428.64m barrels, while US crude production last week hitting a record 10.53m barrels per day (bpd).

The United States now produces more crude than top exporter Saudi Arabia. Only Russia, at nearly 11m bpd, pumps more.

Demand, particularly in top oil importer China, was also shaky because of high stocks and refinery maintenances.

Opec last Thursday revised its forecast for supply growth from its rivals for 2018 by nearly three times more than its revised projection of growth in global oil demand.

It said growth in non-Opec oil supply was forecast to rise by a further 80,000 barrels per day this year to 1.71m bpd, driven largely by higher-than-anticipated growth in the first quarter in the United States and the former Soviet Union.

At the same time, the Organisation of the Petroleum Exporting Countries increased its forecast for global oil demand growth for this year by 30,000 bpd to 1.63m bpd.

“This mainly reflects the positive momentum in the OECD in the first quarter on the back of better-than-expected data, and supported by development in industrial activities, colder-than-anticipated weather and strong mining activities in the OECD Americas and the OECD Asia Pacific,” it said in its monthly market report.

Gold

Gold futures hit their highest price since August 2016 last Wednesday, rising as investors fled to perceived safe havens after US President threatened a missile strike in Syria.

Gold for June delivery climbed as much as 1.75pc to $1,369.40 an ounce on the Comex in New York, its highest level since Aug 5, 2016, when gold futures traded as high as $1,371. Gold futures prices later retreated slightly from those levels to settle at $1,360

Gold retreated from the 11-week high of $1,365 after the Fed minutes boosted the expectation of faster rate hikes, but managed to secure a bullish technical breakout.

The metal closed yesterday at $1,353, signalling a bull flag breakout, meaning the rally from the December low of $1236.50 has resumed. According to the measured height method, the yellow metal could rally to $1,466 over the next couple of months

Demand for gold jewellery in the United Arab Emirates plummeted in the first quarter, primarily because of the value-added tax. Wholesale gold jewellery sales in Dubai, fell 50 to 60pc in the first quarter from a year earlier after VAT began on Jan 1, according to Dubai Gold & Jewellery Group.

Gold demand in the UAE hasn’t recovered since the 2008 global financial crisis, and dropped to a 20-year low in 2017, according to the World Gold Council. The country, dominated by expats, sells most of its gold products to foreign jewellers, a proposition that became costly and cumbersome with the introduction of the tax this year.

Germany holds 1.8pc of the world’s gold. Gold represents 70pc of the country’s foreign exchange reserves, compared with just 2pc for China and 6pc for Switzerland.

Platinum/Palladium

Palladium surged 6pc last week on the back of concerns that supply from number one producer Russia could be hurt by sanctions imposed by the US.

Palladium, primarily used in catalytic converters, was last year’s best performer among the major precious metals, surging 56pc to reach a record $1 138 an ounce in January.

It has since been hurt by fears its rally had gone too far, sliding as much as 20pc from its January peak on concerns over the prospect of a trade war between major car consumers China and US.

With the market in a physical deficit for the last decade already, and expected to post shortfalls through next year, any threats to Russian supply have the power to drive prices higher, analysts said.

Palladium’s 20pc fall from its January record high has put the metal in bear market territory, but strong chart support and tightness in the underlying market suggest it has hit a solid floor more than 40pc above its 10-year average.

Palladium jumped more than 3pc on Monday, having tumbled to eight-month lows over the previous weeks on concerns over the prospect of a US-China trade war.

Published in Dawn, The Business and Finance Weekly, April 16th, 2018