Crude edges up as Saudi curtails its supplies to US

Gold set for weekly gain

LONDON, March 25, (RTRS): Oil edged higher on Friday, boosted by hopes that an OPEC output cut was beginning to balance a long-oversupplied market, but benchmark prices were on track for weekly losses as concerns persisted over an excess of crude.

Benchmark Brent crude futures were at $50.72 per barrel at 12:55 GMT, up 16 cents from their last close.

US West Texas Intermediate (WTI) crude futures were up 20 cents at $47.90 a barrel. Brent was heading for a weekly fall of around 2 percent, while WTI was off just over 1.8 percent.

Analysts said the gains were a sign that the crude benchmarks, trading roughly 12 percent below the highs reached in January this year, had levelled out.

“The flat price is starting to bottom. A lot of the negativity has been priced in,” said Olivier Jakob, managing director of PetroMatrix.

Saudi Arabia said its crude exports to the United States would fall by around 300,000 barrels per day (bpd) between February and March, boosting price sentiment. It said the expected drop could help draw down US inventories that stood at a record 533 million barrels in the week to last week.

In the United States, shale drilling has pushed up oil production by more than 8 percent since mid-2016 to just above 9.1 million bpd, though producers have left a record number of wells unfinished in Permian, the largest oilfield in the country, a sign that output may not rise as swiftly as drilling activity would indicate.

Saudi exports to other regions, notably Asia, remained elevated despite an effort led by the Organization of the Petroleum Exporting Countries, and supported by other producers including Russia, to cut output by 1.8 million bpd during the first half of the year. Many are now watching for whether OPEC, whose committee monitoring the cuts will meet over the weekend in Kuwait, will extend the deal.

Scepticism

In Russia, private oil producers are ditching their scepticism and lining up behind an extension of output cuts after previous oil price increases compensated for lost income.

Unless OPEC extends the curbs beyond June or makes bigger cuts, traders say oil prices are at risk of falling further. “OPEC’s goal of drawing down inventories to normal levels is not going to be reached before their agreement expires on June 30,” said US investment bank Jefferies in a note to clients.

Dennis Gartman, founder and editor of the Gartman Letter said the longer-term outlook was for continuing low oil prices.

“This slump is very real ... Fracking has only just begun here in the US and it will be transferred swiftly to other countries abroad, so the supply of crude oil is going to increase rather dramatically in the years to come,” he told the Reuters Global Markets Forum on Friday.

Gold was on track for a second weekly gain on Friday as concern about the ability of US President Donald Trump to push legislation through Congress held the dollar near seven-week lows, making bullion cheaper for holders of other currencies.

Spot gold was up 0.2 at $1,247.65 an ounce at 15:23 GMT. The metal has risen 1.6 percent this week and on Thursday touched $1,253.12, its highest since Feb 28.

US gold futures were flat at $1,247.60 an ounce. Gold, seen as a safe haven asset, has benefited from falls in the dollar, US bond yields and stocks this week as Trump’s difficulty in passing healthcare reform has undermined faith that he can deliver on promises of tax cuts and investment.

Showdown

Trump has set up a showdown with lawmakers by demanding support for the healthcare bill in a vote on Friday. “This is a key event not just for gold but for all risk assets,” said Robin Bhar at Societe Generale.

“We should see some safe haven flows into gold if he can’t get it passed because it means all his other programmes have a low probability of succeeding,” he said. Failure to pass the bill could push gold through technical resistance at around $1,250, analysts said. “If the market can consolidate above $1,250 in the coming days we could see an attempt at the 200-day moving average of $1,259.50,” Tim Brown at MKS PAMP wrote in a note.

Away from Congress, focus could move to the US Federal Reserve. Three Fed officials, Charles Evans, James Bullard and William Dudley, were due to speak on Friday.

Gold prices have been supported by expectations that the Fed will raise interest rates more slowly than some had feared. Higher rates tend to pressure gold by lifting the opportunity cost of holding non-yielding bullion and boosting the dollar, in which gold is priced. Bullard said on Friday that just one more rate hike this year would be appropriate following a rise earlier this month, but that he would not fight a second one. Dudley said that “delicate” policy changes were necessary.

Silver was up 0.7 percent at $17.67 an ounce. Platinum was 0.6 percent higher at $964.36 an ounce. Palladium was up 1.6 percent at $812 an ounce, having hit a twoyear high of $815.10 earlier in the session.