Oil bounces but weaker demand outlook weighs

Gold tops $1,205 mark

LONDON, Oct 13, (RTRS): Oil rebounded towards $81 a barrel on Friday as an equities rally lent support, though prices pared gains after a closely watched forecaster deemed supply adequate and the outlook for demand weakening.

Crude was still heading for its first weekly drop in five weeks, pressured by a big rise in US inventories and fading concerns for now about looming US sanctions aimed at cutting Iran’s oil exports.

Global equities were set for their biggest daily gain in nearly a month. Declining equities amid wider risk-off investor sentiment had pressured oil on Thursday.

“A rebound in equity markets would help Brent to rebound from $80,” said Petromatrix analyst Olivier Jakob, adding that a dip below $80 on Thursday did not clearly break that level as a source of technical support.

International benchmark Brent crude rose 65 cents to $80.91 a barrel by 1328 GMT, having dropped by 3.4 percent on Thursday. US crude added 79 cents to $71.76.

Still, the monthly report by the International Energy Agency (IEA) on Friday weighed. The IEA said the market looked “adequately supplied for now” and trimmed its forecasts for world oil demand growth this year and next.

Policy

“This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data,” said the IEA, which advises industrialised countries on energy policy.

The IEA report is the latest government assessment to predict weaker demand ahead and conclude that supply is adequate. The Organization of the Petroleum Exporting Countries (OPEC) made a similar move on Thursday.

“The bearish alarm bells are ringing for next year’s oil balance as market players brace for the return of a supply surplus,” said Stephen Brennock of oil broker PVM.

A drop in US oil production also lent prices some support. In the US Gulf of Mexico, companies cut output by 40 percent on Thursday because of Hurricane Michael, even as some operators began returning crews to offshore platforms.

Michael made landfall in Florida on Wednesday as the third most powerful hurricane to strike the US mainland, though it has since weakened to a tropical storm.

Gold rose more than 1 percent to near three-week highs on Thursday, climbing above $1,200 per ounce as sliding global stock markets prompted risk-wary investors to seek out the metal, with a weaker dollar also supporting prices.

Spot gold gained 1.3 percent to $1,209.30 an ounce by 1457 GMT, having hit its highest since Sept 21, at $1,210.34. US gold futures added 1.4 percent to $1,210 an ounce.

European stocks fell in line with a slump on Wall Street, pointing to growing risk aversion across global markets.

“Gold is finding a bit of support from the global sell-off seen in equities. If this (sell-off) persists, we will start seeing more of a move to gold as a safe-haven asset,” ING analyst Warren Patterson said.

Gold

“Rising US yields and general strength in the dollar have meant that investors have largely ignored gold. But people are seeing fairly good value at current levels on the back of some macro concerns.”

Wednesday’s dive on Wall Street prompted US President Donald Trump to lash out against the US Federal Reserve for raising interest rates.

The Fed increased rates last month for the third time this year and is widely expected to hike again in December.

Gold has fallen more than 12 percent since hitting a peak in April, with investors increasingly switching to the safety of the greenback as the US-China trade war unfolded against a backdrop of rising US interest rates.

But prices have managed to stay above a 1-1/2-year low of $1,059.96 hit mid-August, propped up by limited safe-haven buying at lower levels linked to concerns over economic growth and inflationary pressure from soaring oil prices.

Peter Hug, global trading director at Kitco Metals, said that a break above $1,208 could trigger more buying.

“The weakness in the dollar and to some extent the fear in the equity carnage have spooked the shorts.”

Holdings in the SPDR Gold Trust, the world’s largest goldbacked exchange-traded fund, rose 1.21 percent to 738.99 tonnes on Wednesday, the first gain in holdings since July and the biggest inflow since March.

Spot silver rose 1.4 percent to $14.43 an ounce, while palladium was up 1.7 percent at $1,085. Platinum edged up 0.6 percent to $824.10 an ounce.