Oil up over 2% as OPEC raises output modestly
Gold claws higher on weak dollar
LONDON, June 23, (RTRS): Oil prices rose sharply on Friday as OPEC agreed a modest increase in output to compensate for losses in production at a time of rising global demand.
Benchmark Brent crude jumped $2.29 a barrel, or 3.1 percent, to a high of $75.34 before slipping to around $74.60 by 1345 GMT. US light crude was $1.90 higher at $67.44.
The Organization of the Petroleum Exporting Countries, meeting in Vienna, agreed on Friday to boost output from July after its de facto leader Saudi Arabia persuaded arch-rival Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage.
The group agreed OPEC and its allies led by Russia should increase production by about 1 million barrels per day (bpd), or 1 percent of global supply, OPEC sources said.
The real increase will be smaller because several countries that recently underproduced oil will struggle to return to full quotas, while other producers may not be able to fill the gap. The deal looked to be broadly in line with expectations.
Analysts had expected OPEC to announce a real increase in production of 500,000 to 600,000 barrels per day (bpd), which would help ease tightness in the oil market without creating a glut.
Increase
“The effective increase in output can easily be absorbed by the market,” Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, told the Reuters Global Oil Forum.
Oil prices have been on a rollercoaster ride over the last few years, with the international marker, Brent, trading above $100 a barrel for several years until 2014, dropping to almost $26 in 2016 and then recovering to over $80 last month.
The most recent price rally followed an OPEC decision to restrict supply in an effort to drain global inventories.
The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply.
Falling production in Venezuela and Libya, as well as the risk of lower output from Iran as a result of US sanctions, have all increased market worries of a supply shortage.
Another big uncertainty for oil is the escalating dispute between the United States and its trading partners, which could hit US crude oil exports to China. Asian shares hit a six-month low on Friday as tariffs and the US-China trade battle start taking their toll.
If a 25 percent duty on US crude imports is implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere. Chinese buyers are already starting to scale back orders, with a drop in supplies expected from September.
Gold
Gold prices edged up from sixmonth lows on Friday as the dollar slipped, but the modest nature of the recovery suggested speculators might still be poised to punish the metal further.
Spot gold was up 0.2 percent at $1,268.84 an ounce, by 1345 GMT. In the prior session, bullion touched $1,260.84, its lowest since Dec 19, 2017.
US gold futures for August delivery added 0.1 percent to $1,271.10 per ounce.
“If the dollar is weaker and gold is not reacting much, that’s usually a bad sign, that means that you’ll probably get more downside,” Georgette Boele, commodity strategist at ABN AMRO in Amsterdam, said. “People think that since gold failed at the $1,300 level, they are seeing how far they can push it down and then move it up again. I would say it should bottom out anywhere between $1,250 and $1,200.”
Gold tumbled last Friday after repeatedly failing to surmount the $1,300 level as speculators rushed to liquidate long positions and others put on bearish positions.
The dollar pulled back from an 11-month peak against a basket of major currencies on Friday, as the euro strengthened after a survey showed Eurozone private business growth recovered in June.
A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies.
Commerzbank agreed that gold was unlikely to recover in the nearterm even with potentially destabilising events such as the Turkish presidential election on Sunday and a European Union summit later next week.
“If gold is not even in demand as a result of the escalating trade dispute between the US and China, we do not believe that the other upcoming events will do much to sway the opinion of market participants,” a note from the German bank said.
Holdings of SPDR Gold Trust , the world’s largest gold-backed exchange-traded fund, dropped 0.5 percent to 824.63 tonnes on Thursday.
In Asia, gold demand picked up in most centres this week as prices slid to a six-month low, with gold being sold at a premium in India for the first time in seven weeks. Many buyers, however, were waiting for prices to fall further.