Crude prices heading for biggest H1 dip since 90s

Gold hits one-week high

LONDON, June 24, (RTRS): Oil traded flat on Friday, hovering near a 10-month low in US prices hit earlier this week, and remained on course for its biggest first-half decline in almost two decades as production cuts have failed to reduce oversupply.

Brent crude futures were down 8 cents at $45.14 a barrel at 13:37 GMT. US West Texas Intermediate (WTI) crude futures traded at $42.64 a barrel, down 10 cents.

Oil prices have fallen about 20 percent this year despite an effort led by the Organization of the Petroleum Exporting Countries to cut production by 1.8 million barrels per day (bpd).

That puts the market on course for its biggest first-half percentage fall since the late 1990s, when rising output and the Asian financial crisis led to sharp losses.

“It is doubtful whether the end of the downward spiral ... has already been reached. After all, there is still no end to the bearish news that could continue to drive short-term investors from the market,” wrote analysts at Commerzbank, referring to rising Nigerian exports.

Others disagree and see oil returning to $50 a barrel on some of the more bullish signals in the market.

Frank Schallenberger, head of commodity research at LBBW in Stuttgart, said he expects prices to rise by the end of the year on higher demand as well as OPEC and non-OPEC production cuts.

Falling

Tamas Varga, senior analyst at London brokerage PVM Oil Associates, pointed to falling crude inventories in the United States as a fundamental factor that could support prices.

Earlier this week, the US Energy Information Administration said crude inventories declined by 2.7 million barrels last week, exceeding analyst expectations for a 2.1-million-barrel drop.

At the heart of the glut is that efforts to reduce production by OPEC suppliers, as well as Russia, have been met by soaring output from the United States and OPEC members Libya and Nigeria, which are exempt from the cuts.

Thanks to shale drillers, US oil production has risen more than 10 percent in the past year to 9.35 million bpd, close to the level of top exporter Saudi Arabia.

Meanwhile, gold prices climbed to one-week highs on Friday, boosted by a lower dollar and economic and political uncertainty around the world, but the prospect of further interest rate rises in the United States limited gains.

Spot gold was up 0.6 percent at $1,257.1 an ounce at 13:20 GMT after earlier touching a session high at $1,258.81. US gold futures rose 0.7 percent to $1,257.9. However, gold is little changed from last week.

“The broad story is the tug of war between the Fed, which seems determined to push on with monetary tightening and reducing its balance sheet and political uncertainty,” said Danske Bank analyst Jens Pederson.

Allegations of ties to Russia have cast a shadow over US President Donald Trump’s first five months in office, North Korea testing a rocket engine and Brexit negotiations are all fuelling concern about global stability.

Tensions

“Political noise out of Washington regarding Trump’s ties with Russia is unlikely to provide lasting support to gold while an escalation of the geopolitical tensions with North Korea is a bullish wild card,” Julius Baer analysts said in a note.

“Facing higher interest rates and a stronger dollar, we still see gold prices weakening towards $1,200 per ounce over the coming months.”

Gold is often used by investors as a hedge against political and financial uncertainty. But it doesn’t earn interest, dividends or coupons and it costs money to insure and store. A rising US currency makes dollar-denominated metals more expensive for holders of other currencies, which potentially could subdue demand.

The Fed’s rate rise on June 14 saw investors sell gold. Holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust , have fallen to 27.456 million ounces from 27.875 million ounces on June 13.

On the technical side, the first upside barrier comes in around $1,260 near the 55-day moving average. That is followed by the 21-day moving average at around $1,264, while the 100day moving average at $1,249 provides strong support.

Elsewhere, silver gained 1.1 percent to $16.71 an ounce, platinum climbed 0.3 percent to $924.2 an ounce and palladium rose 0.8 percent to $877.2.