Oil

Oil prices edged lower on Friday last after strong gains the previous day, easing on persistent supply concerns as Russia increased production in July and Saudi Arabia cut the price of crude for its Asian customers.

Brent crude futures LCOc1, the international benchmark for oil prices, were down 17 cents, or 0.2 per cent at $73.28 a barrel by 0232 GMT, after rising 1.5pc on Thursday.

Russian oil output rose by 150,000 barrels per day in July from a month earlier, surpassing the amount Moscow had said it would add following a meeting of global oil producers in Vienna in June, energy ministry data showed on Thursday.

Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production to help to compensate for an anticipated shortfall in Iranian crude supplies once planned US sanctions take effect later this year.

The Organisation of the Petroleum Exporting Countries (Opec) and partners, including Russia, had earlier cut output to rebalance supply and demand.

US crude inventories rose 3.8 million barrels as imports jumped, the government’s Energy Information Administration said. However, there were some bullish elements in the report. Gasoline stocks declined by 2.5m barrels, while crude stocks at the Cushing, Oklahoma, delivery hub for WTI futures, fell 1.3m barrels, EIA data showed.

Brazilian oil exports hit a record in July, nearly three times its shipments in June and 50pc higher than a year earlier, government data showed on Wednesday.

Iraq exported 3.543m barrels per day (bpd) of crude from its southern ports in July, slightly above the June average, the oil ministry said on Wednesday last.

Russian oil production last month was on average above the level Moscow promised following the Organisation of the Petroleum Exporting Countries and non-Opec meeting in June, energy minister Alexander Novak indicated on August 1. Novak said that higher production was needed to maintain the market’s stability.

In the New York market, oil prices fell about 2pc on August 1, as a surprise increase in US crude stockpiles fed concerns about global oversupply, while investors worried that trade tensions could hit energy demand.

Brent crude futures LCOc1 fell $1.82 to settle at $72.39 a barrel, a 2.5pc loss. US West Texas Intermediate (WTI) crude CLc1 futures fell $1.10 to settle at $67.66 a barrel, a 1.6pc loss.

Oil prices are also being pressured by concern that global trade tensions could crimp economic growth.

A Kuwaiti official said the country increased production in July by 100,000bpd from June’s average. On July 30, a Reuters survey found that Opec production reached a 2018 high in July. Opec, plus Russia and other allies, decided in June to ease supply cuts in place since 2017.

Crude fell to the lowest in more than five weeks as a surprise rise in US crude inventories and increases in production from Opec and Russia has investors worried that global supply levels are on the upswing.

Futures in New York dropped 1.6pc on August 1. While data from the Energy Information Administration showed US crude inventories rose 3.8m barrels last week, Saudi Arabia pumped near-record volumes in July and Russia increased its crude production to levels not seen since it joined Opec in a coordinated output cut two years ago.

The EIA also reported US crude exports posted the biggest decline on record last week, while US crude production fell for the first time since February. Crude stored at the key Cushing pipeline hub in Oklahoma declined for an 11th straight week. At the same time, refiners accelerated oil processing for the first time since late June.

Meanwhile, the United States is considering more levies on Chinese imports, according to people familiar with the internal deliberations, imperilling demand growth.

Saudi Arabia’s oil production grew by 230,000 barrels a day in July to 10.65m barrels a day, just shy of an all-time peak reached in 2016, according to a Bloomberg survey of analysts, oil companies and ship-tracking data.

GOLD

Gold prices held steady near a one-year low on August 3, amid a resilient dollar and were headed for a fourth straight weekly fall.

Spot gold was unchanged at $1,207.97 an ounce at 0330 GMT, after earlier dropping to the lowest since July 2017 at $1,205.95. For the week, the precious metal was down about 1.3pc. US gold futures were 0.3pc percent lower at $1,216.20 an ounce on Friday last.

The dollar climbed to a two-week high against a basket of major currencies and stayed firm against the yuan as worries about an escalation in trade tensions between the United States and China supported the US currency.

The greenback was also supported by strong US economic data and outlook for higher interest rates. Higher US rates tend to boost the greenback, in which the metal is priced.

Gold inched higher in early trade on Thursday last, recovering from its fall in the previous session when the US Federal Reserve kept interest rates steady.

Spot gold was up 0.2pc at $1,218.22 an ounce at 0052 GMT, after losing 0.65 percent in the previous session.

US gold futures were, however, 0.1pc lower at $1,226.80 an ounce. The dollar index, which measures the greenback against a basket of six major currencies, was unchanged at 94.641.

US short-term interest rates futures, were little changed as traders stuck to the view that the Federal Reserve would raise key borrowing costs two more times in 2018, with the next rate hike seen happening at its September 25-26 policy meeting.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.40pc to 796.96 tonnes on August 1 from 800.20 tonnes a day earlier.

Total global demand for gold was 1,959.9 tonnes over January-June, down from 2,086.5 tonnes in the same period last year and the lowest first-half total since 2009, the industry-funded WGC said in its latest Gold Demand Trends report.

For the second quarter, demand was down 4pc year-on-year at 964.3 tonnes. Purchases of gold for investment fell 9pc, driven by a 46pc decline in ETF buying.

ETF investment was weakest in the United States, where a strong economy gave little incentive to buy gold, traditionally used as a safe place to store assets during political and economic uncertainty.

But in Europe, demand was bolstered by the rise of eurosceptic parties in Italian elections and uncertainty over European Central Bank policy. In China an escalating trade dispute with Washington and falling stock markets drove investment demand.

In Iran, meanwhile, sales of gold bars and coin surged 202pc as the United States pulled out of a deal on the country’s nuclear programme.

According to the World Gold Council jewellery demand failed to gain from a 5.4pc fall in the price of gold over April-June because the currencies of key consumers including China, India and Turkey weakened, making dollar-priced gold more expensive for local buyers.

Published in Dawn, The Business and Finance Weekly, August 6th, 2018