OIL prices fell to their lowest in two months last Wednesday after the United States’ oil inventories unexpectedly increased and investors worried of softening demand from global trade tensions and financial problems in Turkey.

The US and China have been locked in a trade battle for months, pressuring economic activity in both countries. Chinese importers appear to be shying away from buying US crude oil as they fear Beijing may decide to add the commodity to its tariff list.

Not a single tanker has loaded crude oil from the US bound for China since the start of August, Thomson Reuters Eikon ship tracking data showed, compared with about 300,000 barrels per day (bpd) in June and July.

The US Energy Information Administration reported a hefty, 6.8m barrel increase in US stockpiles of crude oil, which surprised analysts who, on average, were expecting a 2.4m barrel decrease. US commercial crude-oil inventories now stand at 414m barrels.

A broader figure in the EIA report that adds together both crude oil and fuels such as gasoline also showed a huge and unexpected increase.

Sentiment in oil markets was also cautious due to the rise in US crude production and storage levels as well as weakness in emerging market economies, especially in Asia, that could limit demand growth.

Providing Brent crude with some support were looming US sanctions against Iran’s oil exports, set to start from November, with Asian buyers including India, South Korea and Japan already scaling back orders in anticipation. Brent and WTI crude futures have seen a mild reprieve on Aug 16, after falling to the lowest level since early April.

Gold/ silver

Gold and silver prices were holding slight gains in early US trading on Thursday last, on correctives rebounds after gold hit a nearly 1.5-year low overnight and silver scored a two-year low.

Strong appreciation in the US dollar along with dropping crude oil prices have been major bearish elements punishing the precious metals markets recently. December gold futures were last up $2.20 an ounce at $1,187.20. September Comex silver was last up $0.166 at $14.615 an ounce.

There is less risk aversion in the world marketplace, partly on news the US and China are set to hold trade talks later this month — the first negotiations in two months. However, the threat of an emerging markets economic and currency crisis is still on the minds of many traders and investors, and this matter will not just disappear. The Turkish lira, which has garnered the most scrutiny in recent weeks, is trading higher versus the US dollar.

Gold/ silver prices were hammered lower Aug 14, by a surging US dollar on the foreign exchange market. Gold scored a nearly 1.5-year low, silver a two-year low. The US dollar index hit a 14-month high on worries about a global currency market crisis developing.

December gold futures were last down $17.50 an ounce at $1,183.30. September Comex silver was last down $0.633 at $14.42 an ounce. US-Turkey relations have further deteriorated as Turkey has slapped economic sanctions on the US.

While the Turkish lira stabilised at mid-week, other secondary currencies are still very wobbly and traders/investors worldwide are still jittery that a secondary currency contagion could develop as the US dollar continues to appreciate against most world currencies.

Gold and silver bulls remain stymied their safe-haven metals cannot get a bid due to the risk aversion in the world marketplace at present. Gold hit its lowest level since January 2017 last week, as Turkey’s lira plunged to an all-time low and the dollar hit a 13-month high.

The fall is part of a broader slump as investors shy away from emerging market shares and currencies. On Wednesday last, gold stood at $1,180 an ounce, a 19-month low. Investors have pulled $3.9 billion worth of gold from exchange traded funds since the beginning of June, according to Reuters.

Total gold demand in the first half of the year hit its lowest level since 2009, according to the World Gold Council.

Published in Dawn, The Business and Finance Weekly, August 20th, 2018