Crude ‘slips’ further as OPEC meet disappoints

Gold hits four-week high

LONDON, May 27, (RTRS): Oil prices slipped further on Friday following an OPEC-led decision to extend current production curbs that investors gauged did not go far enough to reduce a global supply glut.

At Thursday’s meeting in Vienna the Organization of the Petroleum Exporting Countries and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) of output until the end of the first quarter of 2018. The initial agreement would have expired next month.

Producers have expressed confidence that this plan will bring down crude oil stocks to their five-year average of 2.7 billion barrels but the market had hoped for a last-minute agreement on more far-reaching action.

Crude prices tumbled 5 percent following the decision on Thursday and extended losses on Friday.

“Expectations had become so high that the mere extension of the status quo by nine months resulted in disappointment,” said analysts at Commerzbank.

Global benchmark Brent futures were down 37 cents at $51.09 a barrel at 1333 GMT, hitting a daily low of $50.71.

US West Texas Intermediate (WTI) crude futures traded at $48.59 a barrel, down 31 cents day on the day. Its intra-day low was $48.18.

US oil production has already risen by 10 percent since mid2016 to over 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.

Rising

With US output rising steadily and OPEC and its allies potentially raising production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.

Other assessments pointed to the possibility of output cuts being extended into 2019 in order to bring down both crude oil and refined product stocks.

“Output controls will eventually be extended at least until the end of 2018, and more likely than not into 2019 ... At this pace, it will not be until at least the end of 2018, or indeed, 2019, when surplus inventories can be eliminated,” said analysts at Deutsche Bank.

Meanwhile, gold hit its highest in nearly four weeks on Friday as political uncertainty led investors to shun riskier assets in favour of bullion.

“We have had the political noise coming from Trump and the US administration and there is a certain element of uncertainty in the markets in general, which is supporting gold.

Equities are also down,” analyst Carsten Menke at Julius Baer in Zurich said.

Leaders of the world’s rich nations face difficult talks with Donald Trump at a G7 summit in Sicily on Friday after the US president lambasted NATO allies and condemned German trade policies a day earlier.

Alternative

Gold is used as an alternative investment during times of political and financial uncertainty.

Spot gold had gained 1 percent to $1,267.74 per ounce by 1415 GMT, the highest since May 1. US gold futures gained 0.9 percent to $1,267.40 an ounce.

Menke expects gold to remain rangebound with a price target of $1,200 in three months.

“The headwinds are coming from US monetary policy. We do expect a rate hike in June and we see the dollar strengthening again. On the upside, there’s a lot of uncertainty, which keeps people from selling gold and maybe causing a little bit of buying.”

Data on Friday showed US gross domestic product increased at a 1.2 percent annual rate in the first quarter instead of the 0.7 percent pace reported last month, supporting the dollar.

Among other precious metals, spot platinum climbed 1.6 percent to $961.24, its highest in a month.

Head of Technical Analysis Stéphanie Aymes at Societe Generale said a bullish formation on the charts means platinum is expected to head towards $991.

“Platinum has been tracing a pattern similar to a triangle and more importantly a probable double bottom at $900/$890 levels,” she said in a note.

Platinum is up 2.8 percent for the week, the biggest weekly rise since early January.

Spot silver rose 1.4 percent to $17.36 and was on track to gain 3.3 percent this week, its biggest weekly rise since early January. Palladium rose 1 percent to $779 and has added 1.8 percent this week, its first weekly gain this month.