Thursday, March 28, 2024 | Ramadan 17, 1445 H
broken clouds
weather
OMAN
23°C / 23°C
EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Oil firm after realpolitik trumps rivalry in Vienna

OLE-HANSEN
OLE-HANSEN
minus
plus

Crude oil held steady after Opec and Russia showed unity and extended production cuts until the end of 2018.


Gold’s November trading range was the tightest since 1999 while industrial metals retraced on continued worries that the outlook for Chinese growth and demand may underwhelm.


Oil traders attention were fixed on Vienna where Opec and non-Opec producers met to discuss how to proceed with the process of bringing balance between supply and demand for crude.


In the end they delivered what the market had been pricing in: A nine-month extension of the current deal to keep 1.8 million barrels/day from the market until the end of 2018.


In addition, Libya and Nigeria agreed not to lift production beyond their respective 2017 peaks while Russia was appeased with a review date in June next year.


Gold traded within its tightest monthly range (measured in per cent) since 1999 last month while a lower monthly trading range than November’s 33 dollars was last seen in 2005 when gold traded at $465/oz.


The market remains stuck between the negative pull of rising rates and underlying demand from investors seeking tail-end protection against geopolitical events and the rising risk of a stock market correction.


Gold has now been range-bound in a relatively tight range around $1282/oz for the past three months.


Resistance at $1300/oz was challenged this week during the Japanese yen’s failed attempt to break higher. A stronger dollar, higher bond yields and speculation that the US tax bill would pass helped send the yellow metal straight back down to test support located just below $1270/oz.


The Bloomberg Industrial metals index was on track to record its worst week since March. The weakness was led by nickel which continued to pare back recent gains which were driven by euphoria about future demand from the electric vehicle industry.


Copper lost more than 3 per cent with this bellwether metal seeing funds selling in response to rising concerns about the prospects of the Chinese economy over the coming year.


The weakness occurred despite Eurozone data continuing to point towards the best year for its economic growth in a decade. Weakness among industrial metals added to silver’s woes as it recorded its worst week in five months.


This resulted in the gold-silver ratio breaking to the upside and touching its highest level since April 2016.


Silver tends to struggle relative to gold when the demand is driven by diversification and safe haven demand.


Adding to this its credentials as a high beta gold meaning it tends to swing more violently, not least to the downside, given the current reductions in ETP holdings and a relative elevated hedge fund long.


Crude oil held steady on Friday just below a two-year high.


This following Opec and non-Opec producers’ decision to play safe and maintain output cuts throughout 2018.


Russia had raised some concerns ahead of the meeting as it seemed they were balking at the prospect of ordering their producers to keep the taps turned down for another nine months.


In order to meet Russian concerns it was agreed to review the deal at the next ordinary Opec meeting on June 22 while Libya and Nigeria agreed not to lift production beyond their respective 2017 peaks.The show of unity in Vienna was a classic example of realpolitik with the economic importance of keeping prices supported outweighing fraught relations between several countries.


Much now hinges on continued compliance from the group with Iraq potentially being one of the candidates struggling to keep its commitment.


While southern Iraqi oil sales have jumped to a record, Jabbar al Luaibi, the oil minister, in Vienna expressed some very ambitious plans to improve the fields around the northern city of Kirkuk.


Back in October Iraq regained control of the area from the Kurdish Regional Government. A move which led to a temporary drop in supplies from northern Iraq to the Turkish port of Ceyhan and which helped support the oil rally back then.


Ole Hansen


[Ole Hansen is Head of Commodity Strategy at Saxo Bank]


SHARE ARTICLE
arrow up
home icon