Oil on track for biggest weekly gain in 2 months

Gold weighed by tightening fears

AMSTERDAM, Sept 16, (RTRS): Brent oil prices held near five-month highs on Friday, and were on track for the biggest weekly gain since late July, on forecasts for rising demand and the gradual restart of US oil refineries.

The Organization of the Petroleum Exporting Countries this week forecast higher demand for its oil in 2018 and pointed to signs of a tighter global market, indicating its deal with non-OPEC states to cut output is helping tackle a glut.

That was followed by a report from the International Energy Agency (IEA) saying the glut was shrinking thanks to strong European and US demand, as well as production declines in OPEC and non-OPEC countries.

“Prices have now advanced for the last two weeks off increased demand forecasts from both OPEC and the IEA combined with the near-term demand uplift expected as US oil refineries seek to restart operations post-Hurricane Harvey,” analysts at Panmure Gordon said.

Benchmark Brent crude was up 24 cents at $55.49 a barrel at 13:22 GMT, in a volatile session that saw it stretch from an intraday low of $54.86 to a high of $55.75 a barrel. The contract was on track for its third straight weekly gain and the highest weekly rise since the end of July.

US West Texas Intermediate crude was up 3 cents at $49.92 a barrel. The contract looked set for a 5 percent weekly gain, also its strongest in nearly two months.

Oil investors eyed further impact from increasing crude demand from US oil refineries restarting after hurricane outages.

On Wednesday, 13 of 20 affected US refineries were at or near normal operating rates and another five were restarting or ramping up, according to IHS Markit.

Outages

Analysts at HSBC said that despite the US refinery outages, 2017 was set to be an “extremely strong year” for oil demand growth, a key factor underpinning a rise in prices.

“We remain convinced of longerterm upside to crude prices. With the lack of new major project sanctions, we expect conventional non-OPEC supply to start declining post-2018,” they said.

They maintained their 2018 and 2019 Brent price assumptions at $65 and $70 a barrel, respectively.

Meanwhile, Gold fell on Friday after a European Central Bank (ECB) official called for scaling back the bank’s stimulus programme, although losses were capped when weaker than expected US economic data raised questions about further rate hikes.

ECB board member Sabine Lautenschlaeger made the most explicit call so far from an ECB policymaker for paring the bank’s 2.3 trillion euros money-printing programme.

Data showing that eurozone wages grew at their fastest rate in two years in the second quarter bolstered the case for reining in ECB stimulus.

“For gold this is bad news because this continues the trend of the market pricing in the normalisation of monetary policy,” said Jens Pedersen, senior analyst at Danske Bank in Copenhagen.

But he said there had already been plenty of headlines about the ECB planning an exit from its bond buying and the US Federal Reserve reducing its balance sheet after its big quantitative easing programme.

“It’s difficult to see gold really falling much further on this policy normalisation agenda,” he added. Spot gold was down 0.4 percent at $1,324.58 an ounce by 13:50 GMT. It was down 1.5 percent for the week, on track for its first weekly decline in four.

Normalisation

US gold futures for December delivery fell 0.1 percent to $1,328.30. Those “normalisation” actions by central banks tend to drive rates higher, push bond yields up and put pressure on gold, a non-yielding asset.

Gold pared losses after data on Friday showed US retail sales unexpectedly fell in August and industrial output dropped for the first time since January due to the impact of Hurricane Harvey.

Friday’s numbers were in contrast to strong US inflation data on Thursday which increased prospects of an interest rate hike in December.

The Fed’s next monetary policy meeting begins on Sept 19. Gold largely seemed to shrug off the firing of another missile by North Korea on Friday that flew over Japan’s northern island of Hokkaido.

Commerzbank said August gold imports into India, the world’s second biggest gold consumer, were the lowest so far this year. “Potential buyers have clearly been put off by the sharply rising gold price,” a note said. “If gold prices do not fall, the usual recovery of Indian gold demand in the autumn is likely to prove less pronounced this year.”

Silver fell 0.6 percent to $17.64 an ounce and was set to mark its first weekly decline in four.

Platinum dropped 0.8 percent to $970.80 an ounce after touching $968.30, the lowest since Aug 25. It was down 3 percent for the week, on track for its biggest weekly drop since early May.

Palladium shed 0.5 percent to $918, after marking a four-week low on Thursday. It was heading for a second weekly decline.