In the London market, oil rose last Thursday on concerns about a plunge in exports from Venezuela, although surging US production kept gains in check.

Brent crude futures LCOc1 were up 85 cents at $76.21 a barrel, while US West Texas Intermediate (WTI) crude CLc1 rose 58 cents to $65.31 a barrel.

Venezuela, which faces the threat of US sanctions and is in the midst of an economic crisis, is nearly a month behind delivering crude to customers from its main oil export terminals, according to shipping data, and chronic delays and production declines could breach state-run PDVSA’s supply contracts if backlogs are not cleared soon.

Venezuela’s supply problems have materialised while the Organisation of the Petroleum Exporting Countries has voluntarily cut output since 2017 to help bring global output in line with demand.

The group, led by Saudi Arabia, has complied with its commitment to limit production, but not every member has cut voluntarily. Aside from Venezuela, Angola has also seen output decline rapidly from its aging fields.

Outside OPEC, however, crude output continues to rise, especially in the United States, which is fast closing in on Russia’s position as the world’s largest producer, as supply approaches 11 million bpd.

In the New York market, oil prices fell last Wednesday on worries that global supply is climbing as US inventories rose unexpectedly and Saudi Arabia and other big producers signaled that they may increase output.

US crude inventories rose 2.1m barrels in the week to June 1, the Energy Information Administration said, a surprise after analysts had forecast a decrease of 1.8m barrels. Fuel inventories also rose.

US crude output hit a record of 10.8m barrels a day in the week, according to the EIA’s weekly report. Rising production has prompted selling since global benchmark Brent LCOc1 climbed above $80 a barrel last month.

Brent was down 40 cents a barrel at $74.97. US light crude CLc1 was down 73 cents at $64.79, after touching a session low of $64.27 a barrel.

Although European governments have not followed Washington by creating new sanctions, banks, insurers and shippers are gradually severing ties with Iran under pressure from the US restrictions, making trade with Tehran complicated and risky.

Refiners including France’s Total, Italy’s Eni and Saras, Spain’s Repsol and Cepsa as well as Greece’s Hellenic Petroleum are preparing to halt purchases of Iranian oil once sanctions bite, the sources said.

These refiners account for most of Europe’s purchases of Iranian crude, which represent around a fifth of the country’s oil exports.

Iran’s crude sales to foreign buyers averaged around 2.5m bpd in recent months, according to data collected by Reuters and EU statistics office Eurostat. The bulk of the exports go to Asia.

Saudi Arabia, the world’s largest oil exporter, raised pricing on key crude grades for buyers in Asia to the highest since 2014 as demand builds in the country’s biggest market amid threats to rival suppliers.

State-owned Saudi Arabian Oil Company raised its official selling price for Arab Light crude for July shipment to Asia by 20 cents to $2.10 a barrel more than the Middle East benchmark, the company said. The company’s third consecutive increase in the grade brings it to the highest since July 2014. The producer, known as Saudi Aramco, increased the premium by less than the 34 cent.

This is the third price increase for Arab Light in a row, and it has brought prices to the highest since July 2014. It is, however, lower than the increase six analysts polled by Bloomberg expected, which was $0.34.

The prices of the other Saudi grades, in Extra Light, Medium and Heavy will also sell at multi-year highs, with the Heavy grade selling for the highest prices since 2012.

The Russian energy and finance ministries agreed with oil companies to start cutting the export duty on crude gradually, to bring it from the current 30 per cent to zero over the next six years.

Currently, the oil export duty is tied to oil prices, and calculations for May saw it 6pc higher than in April, at $118.5 per ton of oil, based on a price of $65.80 per barrel.

Gold

In the New York /London market, US dollar weakness helped boost gold prices last Thursday, but gains were limited as the market awaited clues from next week’s meeting of the Federal Reserve on the pace of US interest rate rises.

Spot gold rose 0.24pc to $1,299.05 an ounce, earlier hitting a one-week high,$1,303.08. US gold futures for August delivery settled up $1.60, or 0.1pc, at $1,303 per ounce.

A weaker dollar is good for gold because it makes the metal cheaper for buyers using other currencies and can fuel demand.

Tensions surrounding North Korea have supported gold, increasing demand for an asset viewed as a safe place to invest in times of geopolitical uncertainty.

Markets are meanwhile betting the ECB will signal a winding down of its vast bond-buying program, boosting the euro.

Demand for gold jewellery in China more than tripled over the past 15 years as the economy expanded and individual wealth grew. It is now the largest consumer of gold in the world, with China’s jewellery market accounting for 30pc of global demand.

New data from the World Gold Council show retail and institutional investors in gold ETFs poured a net $771.3m into global funds in May, despite a pullback in the US, the largest market.

Global vaults now hold around 2,484 tonnes or a shade under 80m troy ouncesafter net inflows in May of 14.6t brought the year to date total tonnes acquired to 116.3.

US investors dumped nearly 30 tonnes in May, but the outflows were cancelled out by continued buying by Europeans and a surge in buying in Asia.

Published in Dawn, The Business and Finance Weekly, June 11th, 2018