Oil

AT a recent meeting in Vienna, Organisation of the Petroleum Exporting Countries ministers agreed to keep their daily crude production target unchanged. The 12-nation cartel is producing more than 31 million barrels a day over 1million barrels more than the ceiling it has agreed on. That output is the highest in four years, when calculated over 12 months.

The 12-nation organisation of the Petroleum Producing Countries is expected to continue breaching the ceiling despite a plentiful world supply of oil. Robust US production and anemic world demand due to flagging economic growth have added to the mix, resulting in unusually high crude inventories.

Opec predicts even less demand for its oil next year in part because of consuming countries weak economies a concern the organisation addressed in a post-meeting statement as the “biggest challenge facing global oil markets in 2013.”

Yet, prices remain relatively high. The average cost of the group’s oil basket a mix of grades produced by Opec countries has been above $100 a barrel for the last two years, a first in Opec’s history. Brent crude, which is used to price international varieties of oil, has also been well over $100 a barrel for this year and was trading at $109.63 on December 12, up $1.62 on the day. Such levels cover production costs for most Opec countries with room for profits, leaving Opec ministers comfortable with the present output arrangement.

There was no agreement, however, on replacing Libya’s Abdullah Al-Badry as Opec secretary general. Instead, the meeting extended him for a sixth year, making him one of the longest-serving officials in that post in Opec’s history.

In the New York market, oil prices rose sharply on December 12, with Brent crude pushing toward $110 a barrel after the US Federal Reserve announced plans for more monetary stimulus, while a Texas refinery fire lifted refined product futures.

The Fed’s announcement overshadowed a decision by the Opec to leave its output targets unchanged, despite estimates indicating demand for its crude will be lower next year in the face of rising shale oil output in the United States.

Further support came from the International Energy Agency, which revised its estimate of global oil demand substantially higher for the last three months of this year, and also said consumption would be stronger than previously forecast in 2013.

The Brent crude oil contract for January delivery, which expires on December 14, rose $1.49 to settle at $109.50 a barrel. Brent crude is on course to average around $112 a barrel this year, the highest level on record, and slightly above last year’s then-record average of $110.91.

On December 12, US crude closed up 98 cents at $86.77 a barrel, having reached $87.68. US crude has lost around 12 per cent since the start of the year.

On December 13, oil prices fell in the New York market as concern about the rising risk of US recession given the lack of a deal to avert mandated 2013 tax increases and spending cuts countered support from positive weekly US employment data. Brent crude fell $1.13 to $108.37 a barrel.

Demand will be sluggish through 2013 as economic expansion stays tepid and crude supply levels comfortable, which could ease price pressure on consumers, the International Energy Agency said. Global oil demand would grow 865,000 barrels per day in 2013 to hit 90.5 million bpd, the IEA said.

Gold

IN the London market, gold prices fell more than one per cent on December 13, failing to sustain gains made after the Federal Reserve unveiled a fresh round of bond purchases, as investors switched focus to the prospect of looming US fiscal crisis. Spot gold fell to a low of $1,688.94 an ounce and was down 0.8 per cent at $1,697.49 an ounce, while US gold futures for December delivery were down 1.1 per cent at $1,698.90.

The precious metal hit a two-week high late on December 12 after the Fed said it planned to buy $45 billion in longer-term Treasuries each month on top of the $40 billion monthly purchase of mortgage-backed securities it announced in September.

Gold benefits from easy monetary policy as it keeps up pressure on longer term interest rates, fans fears over inflation, and can undermine confidence in paper currencies. The precious metal has risen nearly nine per cent so far this year.

According to the World Gold Council’s Gold Demand Trends Report, global gold demand in third quarter 2012 was 1,084.6 tonnes, down 11 per cent from the record Q3 2011 figure of 1223.5 tonnes. This dip in demand is in comparison with exceptional demand in Q3 last year. Gold demand remains resilient Q3 2012 was above the five year quarterly average of 984.7 tonnes. In value terms gold demand was 14 per cent lower year on year at $57.6 billion and the average gold price of $1,652 per ounce was down three per cent on the record average Q3 2011 price.

Global investment in ETFs over the quarter was up significantly by 56 per cent on the previous year. The Indian market is showing signs of recovery, up nine per cent 223.1 tonnes from 204.8 tonnes in Q3 2011 following increases in both jewellery and investment demand. In China demand fell eight per cent to 176.8 tonnes in Q3 2012 from 191.2 tonne in Q3 2011 due to falls in jewellery of six per cent and investment of 12 per cent mainly as a result of negative sentiment surrounding China’s slowing economy.

Central banks bought 97.6 tonnes in the quarter. In six out of the last seven quarters, central bank demand has been around 100 tonnes, which is a sharp increase from as recently as 2010. The year to date figure for central bank buying is up nine per cent.

In the Singapore market, gold dropped about one per cent on December 12 after the Federal Reserve linked its monetary policy to unemployment, raising concerns that future economic stimulus could be limited.

Gold benefits from easy monetary policy as it drives investors who fear diminishing value in fiat currencies to seek safety in hard assets such as bullion. Gold has risen nearly nine per cent so far this year.

The Fed said it plans to buy $45 billion in longer-term Treasuries each month on top of the $40 billion monthly purchase of mortgage-backed securities, as expected, but set unemployment and inflation thresholds for exit strategy.

Spot gold dropped one per cent to $1,693.8 an ounce earlier on December 11, before paring some losses to stand at $1,700.01. Fed’s move to buy bonds had pushed up prices to a near two-week top of $1,723.01 on December 12.

The most-active US gold futures contract lost as much as 1.3 per cent to $1,695.5 an ounce, and recovered to $1,701.70. Nearly 27,000 lots already changed hands, an unusually high number for early Asian trading hours.

Physical gold buying demand is expected to pick up after prices fell below $1,700 levels, traders said.

Copper

IN the London market, copper fell on December 13, Benchmark copper on the London Metal Exchange closed down 0.7 per cent at $8,074 a ton from a last bid of $8,130 at the close on December 12, when it edged up 0.3 per cent. Copper prices have risen more than 7 per cent in the past month, and the metal is now up by more than six per cent on the year.

In the London market, copper prices rose slightly on December 12 and were near two-month highs on prospects of US monetary easing — which was announced after the market’s official close — and on more signs of an economic pick-up in China, the world’s biggest metals consumer. Three-month copper on the London Metal exchange, rebounding from a dip the previous session, was bid at $8,130 per ton at the close of official trading.

Copper, which has shot up about seven per cent over the past month in a year-end rally, got support from expectations for the Federal Reserve meeting on December 12 that led to the announcement.

An economic revival in China, which accounts for about 40 per cent of global copper demand, has also supported markets.

Copper prices are up more than six per cent this year and within reach of almost two-month highs at $8,159 hit earlier last week.

The most-traded March copper contract on the Shanghai Futures Exchange slipped by 0.64 per cent to 57,610 Yuan ($9,200) a ton.

The US Federal Reserve announcing a new round of monetary stimulus took the unprecedented step on December 12 of indicating interest rates would remain near zero until unemployment falls to at least 6.5 per cent.

The Fed also downgraded its growth projections slightly across the three years to 2015 which clouded the outlook for metals demand.