Oil prices have slipped back towards $50 a barrel on news that OPEC production had risen in November, again casting doubt over the effectiveness of the agreed cut of 1.2 million barrels a day, agreed by the group last week. OPEC’s November output rose to 34.19 million barrels per day, compared to 33.82 million in October. While production will drop to 33.5 million barrels a day from January, there are doubts as to how tightly the cap will prove to be fitted. There is also the question of a significant supply overhang that has built up over the past 2 years. Non-OPEC member Russia has also agreed to reduce its own production by 300,000 barrels a day in solidarity with OPEC. However, with a significant scaling up of production in November, this cap is increasingly being regarded as smoke and mirrors by Russia. Output will still be at higher levels over 2017 than it was in the first half of 2016.
Oil prices have picked up again to some extent on Wednesday morning, currently sitting at $51.17 for U.S. crude, up 0.51% from the late session’s close, having touched a low of $47.04. It remains to be seen whether oil price will settle at closer to $55 or $50 a barrel over the next month or two but a number of respected voices in the industry are beginning to edge towards the latter as a forecast.
Meanwhile, gold prices are continuing to drop despite the softening of oil prices, to which they often show counter-correlation. Equity markets have continued to demonstrate relative buoyancy despite falling oil prices, providing a drag on gold, along with the strong U.S. dollar. On New York’s Comex exchange, Gold futures fell 0.5% to $1,170.10 oz. on Tuesday, now around 12% off their November high. Spot gold prices were down fractionally at $1,166.80 per oz on the London Metals Exchange this morning.
Base metal prices showed divergence on the LME over Tuesday with copper prices slipping back by 0.9%, though they have clawed back 0.8% this morning to $5,920 per tonne. Zinc and lead showed gains yesterday, up 1.7% and 1.1% respectively. Conversely to copper, both have also seen small dips of around 0.2% today.