OIL

OPEC decided last Thursday it would extend cuts in oil output by nine months to March 2018. This comes as the group seeks to curb a global supply overhang which has depressed prices and revenues over the past three years.

As expected proposed cuts were shared again by non-Opec producers. Oil prices extended earlier losses shortly after the reported announcement as traders reacted to the developments.

Opec’s cuts have helped push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of rely heavily on energy revenues and have had to rely on foreign-currency reserves to plug holes in their budgets.

The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market’s rebalancing with global crude stocks still near record highs.

US crude production rose to 9.32mbpd last week, an increase of 550,000 barrels this year to the highest since August 2015, according to data from the EIA. That wipes out almost a third of the supply reduction from Opec and its allies and the output surge could double by year-end, consultant IHS Markit Ltd said recently.

Oil prices moved sharply lower after the announcement. West Texas Intermediate for July delivery CLN7, -1.30pc on the New York Mercantile Exchange slumped 78 cents, or 1.5pc, to $50.58, setting it on track for its lowest settlement level since May 18 and its biggest one-day percentage drop since May 4. Brent crude LCON7, -1.09pc, the global benchmark, was off 73 cents, or 1.4pc, at $53.24 a barrel.

President Donald Trump’s proposal to sell nearly half the US emergency oil stockpile is sparking renewed debate about whether the Strategic Petroleum Reserve is still needed amid an ongoing oil production boom that has seen US imports drop sharply in the past decade.

Trump’s budget, unveiled last Tuesday, calls for selling an additional 270m barrels of oil over the next decade, raising an estimated $16.6bn. The proposal, on top of planned auctions expected over the next few years, could push the reserve below 300m barrels by 2025. It now is at 688m barrels.

US companies signed billions of dollars worth of deals with Saudi Arabia’s oil and gas industry during President Donald Trump’s visit to the Kingdom

Aramco also signed an estimate $50bn worth of deals with US companies, many of which envisage investments in the digitalisation of Aramco’s business, offshore and onshore rig development, and oilfield services.

GE signed MoUs and agreements worth a total of $15bn with Saudi companies, including a MoU with Aramco for a digital transformation of Aramco’s operations with the goal of generating $4bn in annual productivity improvements.

National Oilwell Varco entered into an MoU with Aramco to set up a joint venture in Saudi Arabia that would manufacture high-specification land rigs, rig and drilling equipment, and offer certain aftermarket services.

GOLD

MINUTES from the Federal Reserve’s last meeting pointed to a June interest rate hike, which weakened the dollar and raised appeal for the precious metals.

Globally, gold surged 0.63pc to end at $1,258.60/oz while silver rose 0.97pc to 17.22/oz in New York in last Wednesday’s trade.

Global gold demand declined by 18pc during the first quarter of 2017 to 1,034 tonnes, mainly due to less inflows into exchange-traded funds (ETFs) and slower central bank demand, according to the World Gold Council (WGC).

The overall demand stood at 1,262 tonnes in Q1 2016, according to the WGC’s latest Gold Demand Trends report.

One factor contributing to the gold demand slump in the first quarter was a decline in central bank purchases, which slid to a nearly six-year low. Official bank gold purchases worldwide only totaled 76 tonnes for the quarter.

Russia and Kazakhstan were buyers, but China was notably absent from the gold market.

The gold demand in India will remain in the range of 650-750 tonnes in 2017 even if the GST rates are fixed at a lower rate, according to World Gold Council, India.

The gold demand stood at 674 tonnes in 2016.

Platinum prices in dollar terms are up just 4pc this year in the face of a much bigger rally in other precious metals like palladium and gold, and are 32pc below their 10-year average of $1,375/oz.

COPPER

COPPER prices steadied last Thursday as a weaker dollar and falling metal inventories supported sentiment and gains were capped by expectations of weaker demand in top consumer China over the coming months.

Benchmark copper on the London Metal Exchange traded up 0.1pc at $5,687.50/tonne.

Inventories of the metal used in power and construction at 321,575 tonnes in LME warehouses are down more nine percent since hitting a 7-month high above 354,000 tonnes earlier in May.

The global copper market was in surplus for the first two months of the year, according to a new report from the International Copper Study Group.

The refined copper market reported a surplus of 149,000 tonnes in January-February, which the group attributed to a decline in Chinese apparent demand, the leading global consumer.

After seasonal adjustments, the market had a surplus of 62,000 tonnes in the first two months.

World mine production is estimated to have dropped by around 2pc in January-February, some 59,000 tonnes, driven by a 10pc decline in Chilean mine production as a result of the strike at BHP’s Escondida and weaker output at state producer Codelco, as well as lower production in Canada, Mongolia and Indonesia.

However, higher output in Mexico (18pc) and Peru (15pc) managed to partially offset the decline in mined copper.

Published in Dawn, The Business and Finance Weekly, May 29th, 2017