Oil poised for biggest weekly jump this year
Gold hits 6-week high
LONDON, July 29, (RTRS): Oil prices edged higher on Friday, reaching new two-month highs and on track to post the strongest weekly percentage gains this year as investors digested signs of an easing oversupply.
US crude and gasoline inventories fell much more steeply than expected this week and the world’s biggest oil exporter Saudi Arabia said it would further reduce oil output in August.
Brent crude futures were up 44 cents at $51.93 a barrel at 1334 GMT after reaching a new twomonth high of $52.02 a barrel. The front of the crude oil curve jumped into backwardation, with the month-ahead trading above the subsequent month, showing investors are not expecting recent gains to last.
US West Texas Intermediate (WTI) crude futures were up 30 cents at $49.34 a barrel, after also touching a fresh two-month peak of $49.38 a barrel.
Both contracts are set to post their biggest percentage gains this year with a rise of around 8 percent.
“Positive signs came from the draw in gasoline stocks this week, as the US moves into the peak driving season,” said Ashley Kelty, oil analyst at Cenkos Securities.
US crude stocks fell sharply by 7.2 million barrels in the week to July 21 due to strong refining activity and an increase in exports, according to data from the Energy Information Administration (EIA).
Challenge
Brimming US crude supplies have been a challenge to production cuts to prop up prices led by the Organization of the Petroleum Exporting Countries, meaning weekly US inventory data is closely watched.
Despite these signs, analysts’ assessments of the oil market remained bearish.
“We believe the latest price rise is on a fragile footing,” analysts at Commerzbank said, adding OPEC production was likely to rise in the coming months as the group has not officially capped output from members Libya and Nigeria.
Investors were eyeing an update on the US rig count expected later on Friday to assess any signs of a slowing down in drilling activity.
Gold prices rose to a six-week high on Friday after weaker than expected US inflation dampened expectations that the US Federal Reserve will aggressively raise interest rates.
Data on US second quarter gross domestic product (GDP) and labour costs also pushed the dollar lower, making bullion more expensive for holders of other currencies.
“It showed a big fall in annual inflation rates across the board ... so there is no urgency for the Fed to raise interest rates,” said Commerzbank analyst Carsten Fritsch.
Gold is sensitive to rising rates because they push up bond yields, making non-yielding gold less attractive, and tend to boost the dollar.
Spot gold was up 0.5 percent at $1,264.30 an ounce at 1320 GMT after touching $1,266.84, the highest since June 14, just after the data was released. It was on track to rise for a third week in a row.
US gold futures for August delivery were 0.3 percent higher at $1,263.20 an ounce.
US bond yields were largely flat, while global share prices were down.
Risk
“The US economy remains in growth, but there’s very little sign of inflationary risk in today’s GDP data,” Ranko Berich, Head of Market Analysis at Monex Europe, said in a note.
“It’s difficult to get optimistic about rates or USD off the back of today’s release,” he said.
The dollar has weakened for five consecutive months, which together with short-covering has helped gold gain around $60 since early July, said Julius Baer analyst Carsten Menke.
But he said the rally was fragile because it has been accompanied by physical market selling and he expected prices to fall to $1,200 an ounce.
Gold rose through fibonacci technical resistance at $1,261.30. MKS PAMP trader Tim Brown said: “Gold looks well supported ahead of the 100-day moving average at $1,249, and a consolidation above $1,260 could support a move higher.”
Chinese data on Friday showed consumption of gold in the country rose by 10 percent in the first half of the year while production fell, leading to higher imports.
However, the global market had a surplus of 138 tonnes in the first half as demand from physicallybacked exchange traded funds tumbled, GFMS analysts at Thomson Reuters said this week.
In other precious metals, silver was up 0.8 percent at $16.66 an ounce, on track for a third weekly gain.
Platinum was 0.9 percent higher at $930.50 an ounce but set for its first weekly decline in three. Palladium was up 0.1 percent at $873 after touching a one-month high on Thursday, and has gained 3.3 percent this week.