IN the London market, oil rose last Thursday. Brent crude oil futures LCOc1 were up 60 cents at $74.60 a barrel, while United States West Texas Intermediate (WTI) crude futures were up 43 cents at $68.48 per barrel.

The oil price has risen by 15 per cent in the last four weeks thanks to expectations that the US will re-impose sanctions against Iran, a major oil producer and member of the Organisation of the Petroleum Exporting Countries (Opec).

Trump will decide by May 12 whether to restore US sanctions on Tehran, which would likely result in a reduction of its oil exports.

Venezuela’s crude production PRODN-VE has fallen from almost 2.5 million barrels per day (bpd) in early 2016 to around 1.5 bpd due to political and economic crisis.

However, not all market indicators point towards tighter supplies. US crude oil inventories rose by 2.2m barrels in the week to April 20, to 429.74m barrels.

US crude production rose by 46,000 bpd on the previous week, to 10.59 bpd. Soaring US output has made WTI crude around $6 per barrel cheaper than Brent and drawn exports to record highs.

Oil prices were stable last Wednesday, but were below the more than three-year highs reached the previous session.

Brent crude oil futures LCOc1 were at $73.89 per barrel, up 3 cents from their last close but around $1.60 below the November-2014 high of $75.47 a barrel reached the previous day.

US WTI futures were flat at $67.763 per barrel, but off the late-2014 highs of $69.56 a barrel marked earlier in April.

Opec’s co-operation with Russia has helped mop up the large surplus that loomed in oil markets for the past two years. The organisation has collectively withheld roughly 600m barrels of oil from markets since January 2017, with Saudi Arabia cutting more barrels than other members.

The effort has helped global oil inventories to fall from a high of 3.12bn barrels in early 2017, laying the foundations for tighter oil markets.

But Opec’s successful production cuts have also coincided with other unexpected factors that could add to the disruption should a major geopolitical event affect oil supplies.

On the supply side, Venezuela’s crude output has shed more than 500,000 bpd since the end of 2016, with analysts expecting production to continue to plummet as increasing numbers of oil workers abandon their posts and state oil firm PDVSA struggles to pay for spare parts.

Demand, on the other hand is steadily rising, with Asian consumption hitting a record in April. China, alone, is likely to take more than 9m bpd of crude oil, its highest level ever.

Oil prices are expected to average $65 a barrel this year, up from the $53 per barrel average of 2017, driven by strong consumer demand and Opec’s continued cuts, the World Bank said in its April Commodity Markets Outlook.

The World Bank now expects prices of energy commodities — crude oil, natural gas, and coal — to jump as much as 20pc in 2018, a 16 percentage point upward revision from the bank’s previous commodity market outlook from October last year.

Gold

IN the London market, gold prices hovered near five-week lows last Thursday.

Worries about growing supply of US government debt and inflationary pressures from rising oil prices have pushed US 10-year bond yields above 3pc for the first time in four years.

That, in turn, has helped to thrust the dollar to its strongest since January, making bullion more expensive for users of other currencies. Higher bond yields, meanwhile, also reduce the attraction of non-yielding gold.

Spot gold was up 0.1pc at $1,324.95 an ounce, having touched its lowest since March 21 at $1,318.51. US gold futures were up 0.3pc at $1,326.30 an ounce.

The benchmark US Treasury 10-year yield edged above 3pc last Wednesday as jitters about growing federal borrowing spurred more selling in the US government bonds.

A rise in Asian stocks also took some safe-haven demand away from gold. Spot gold may test support at $1,317 per ounce, with a good chance of breaking below this level and falling more to the next support at $1,310.

Gold has been stuck in a trading range between about $1,360 and $1,310. It has been supported by geopolitical uncertainty, which has fuelled demand for gold as a safe haven.

Germany’s central bank, the Bundesbank, has opened an exhibition of its hefty gold reserves after recalling half of its bullion from foreign vaults.

Worth €117 billion and weighing in at 3,400 tonnes, Germany’s stockpile is the world’s second largest after the US.

The Turkish Central Bank has decided to bring its 220 tonnes-worth of gold home stored in the US Federal Reserve, according to Turkish media, and 28.7 tonnes was brought back from the US last year The country’s largest commercial banks have followed suit.

In March 2018, the central bank of the Republic of Turkey, gold reserves were worth 25.3bn dollars; 220 tonnes of Turkish gold was stored in the US.

The largest private Turkish banks also withdrew their gold reserves from abroad, responding to President Erdogan’s call “to get rid of exchange rate’s pressure and to use gold against the dollar.”

In particular, the Halk Bankasi bank transferred 29 tonnes of gold to Turkey. In the middle of all the news surrounding Germany’s gold the Netherlands called home 122.5 tonnes of gold.

Turkey’s central bank, in a fundamental shift in its reserve policy, is stocking gold and scaling back on foreign exchange. In the first week of April, the central bank’s gross foreignexchange reserves declined to $83bn from $84.7bn the previous week, while gold reserves stood at about $25.3bn.

The unprecedented increase in gold reserves propelled Turkey to 10th place in terms of gold reserves in February. According to the World Gold Council, Turkey had 546.8 tonnes of gold that month, compared to 116 tonnes in September 2011.

In terms of value, the country’s gold reserves increased by about $10bn over the past year.

Published in Dawn, The Business and Finance Weekly, April 30th, 2018