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Oil
Oil prices drifted lower after official US government data revealed growing energy stockpiles. The US Department of Energy said in a weekly update that American gasoline or petrol reserves gained 1.7 million barrels to stand at 195.2 million barrel in the week ending May 11. Gasoline is in focus as the United States heads into the peak demand driving season, starting at the end of May, when many Americans take to the roads for their vacations.
The energy Information Administration, the statistical arm of the US department of energy, said US crude stockpiles rose to one million barrels, petrol stockpiles wear up 1.7 million barrels and inventories of distillates, which include heating oil and diesel, increased 1 million barrels.
ICE Brent for June delivery slipped 32 cents to $67.79 a barrel in late afternoon trade in London on May 16, after hitting an intraday peak of $68.54. With the June contract expiring at the close of trade on May 16, July Brent was the most active Brent contract, trading 64 cents lower at $67.77 a barrel. June West Texas Intermediate fell 69 cents to $62.48 a barrel in early afternoon trade on the New York Mercantile Exchange.
The social unrest in Nigeria has led to a shutdown of about one-fifth of the West-African country’s oil production, or about 600,000 barrel per day. ICE Brent for June delivery added $1 to $67.85 a barrel in late afternoon trade in London. The July Brent contract added 69 cents to $67.97 a barrel. June West Texas Intermediate gained 61 cents to $63.07 a barrel in early afternoon trade on the New York Mercantile Exchange.
The Organisation of the Petroleum Exporting Countries gave a contrasting view to the International Energy Agency, the developed world’s energy watchdog, when it said in its monthly report that crude oil inventories were more than enough to cover fuel demand during the peak summer travel season.
Last week, the IEA said in its monthly report that Opec should boost output before the summer, when petrol demand in the US increases as more people take to the road for their holidays.
Opec’s forecast for global growth in oil demand was steady at 1.3 million b/d, or 1.5 per cent, from 2007. It put 2007 demand for Opec crude at 30.33 million b/d, up from 30.28 million b/d previously expected, reflecting lower-than-expected supply from non-Opec countries.
Platinum
Johnson Matthey, the metals and chemicals group analyst said in a recent survey of the platinum market that platinum prices are forecast to reach record highs in the next six months due to light market conditions and investor appetite for commodities.
Investor demand is poised to rise with the launch of exchange traded funds for platinum, which has boosted demand for other precious metals. Bill Sandford, precious-metals product division director at Johnson Matthey, said the launch of platinum-backed exchange traded funds had supported the metal prices, “If the platinum ETFs are particularly successful, then we could see that surplus [for 2007] disappear and the price rise towards $1,400 [an ounce].”
If this forecast is met, it will eclipse the record of $1,390 in November. The platinum price was trading at $1,318 on May 14, down $10 on the day, but up about $200 since the start of the year. Platinum prices averaged $1,143 last year, the first time the average has been more than $1,000 in a calendar year.
Prices remained high in spite of the market moving into surplus for the first time in seven years, albeit a small one of 10,000 oz. Johnson Matthey forecasts another surplus this year, due to further increases in South African production, but this could be eliminated if platinum ETFs are popular with investors.
Johnson Matthey said platinum demand rose 80,000 oz last year, mostly driven by another rise in auto catalysts for diesel vehicles and electronic applications. This was offset by a decline in demand for platinum jewellery.
The fall in jewellery demand from 1.96 million ounces in 2005 to 1.60 million ounces last year was largely due to a further slide in Chinese demand for the jewellery. Johnson Matthey said Chinese platinum jewellery demand is down 50 per cent from its peak of about 1.45 million oz in 2002.
Platinum jewellery accounts for about a quarter of total demand for the metal compared with 40 per cent in 2002, when it had a bigger share of consumption than autocatalysts. Now the latter command more than 60 per cent share of total platinum consumption.
Gold
Gold prices which had fallen a week earlier to their lowest level for more than a month, changed course to move higher in late European business on May 15 as a drop in the dollar after the release of US core consumer price data prompted investors to buy bullion. A weaker dollar makes gold cheaper for holders of other currencies and boosts bullion demand.
A stronger US currency makes dollar-denominated metals more expensive for investors in other currencies, while gold is often used as a hedge against oil-led inflation. However analysts say stock market losses and a generally stronger dollar — near one-month highs against the euro — point to a nervous mood among investors, who are likely to sell their holdings, including gold, much as they did earlier this year.
Gold bulls expected prices would eventually test the 26-year highs of $730 an ounce set last May. But that hope faded and gold’s prospects could deteriorate further if U.S. Treasury Secretary Henry Paulson’s support for a stronger dollar is the beginning of a new trend.
Analysts also cited heavy sales by European central banks for gold’s decline. The Bank of Spain on May 11 said it sold 1.3 million ounces of gold from its reserves in April and another 1.3 million ounces in March.
The World Gold Council said gold jewellery demand rose 17 per cent to 572.8 tonnes in the first quarter, but remained well below the quarterly average of the 2005 year. The data indicated that demand was recovering from the slowdown seen last year due to the rise in the gold price.
Demand from exchange traded funds plunged in the first quarter, dropping to 36.4 tonnes from 112.9 in the first three months of 2006. ETFs have been one of the great success stories for the physical gold market, creating a new area of demand. However, the gold prices ignored the council’s data, declining about $9 to $662.60 a troy ounce as the dollar adopted a firmer tonne.
HSBC Investment Bank lifted its price forecasts for all precious metals the previous day, citing the dollar’s weakness, stronger oil prices and robust investment demand from the exchange-traded funds (ETFs).
The bank lifted its gold price target to $660 an ounce from $630 for 2008 and raised the 2009 target to $600 from $550, but left its 2007 estimate unchanged at $680. South African gold miner said its Emperor Mines unit had closed out its gold forward-set hedge book of 145,695 ounces for a total of $34.2 million.
