News that U.S. oil inventories have dropped by 2.4 million barrels last week when a drop of one million had been forecast may have been expected to provide a new boost to oil prices. However, they have continued the slide of the past three days as the 12% rally that followed last week’s OPEC announcement on output cuts continues to be eroded. Brent crude dropped in New York yesterday by another 1.7% and is currently at around $55 a barrel. WTI slipped back below $50 with a 2.3% loss.
Hopes that oil prices might touch $60 a barrel by the end of the year have all but evaporated and there is growing belief that OPEC and other big exporters of cheap oil, namely Russia, will look to ensure that prices do not rise beyond $58 a barrel. Quoted by CNBC, RBN Energy President Rusty Braziel commented:
_“the sweet spot for OPEC is to have crude prices between $55 and $58 a barrel. They want the extra money, but do not want to create the economics to have the U.S. increase production by 100,000 barrels a day.”_
It is beginning to become clear that the main motivation behind OPEC’s output reduction was most likely not to push oil prices up towards and potentially beyond the $60 mark in 2017, but to provide a firm floor to prevent prices slipping to around and below $50 a barrel.
Gold price found a degree of support yesterday, spot prices seeing an increase of 0.5%. So far today they have remained fairly flat, adding 0.1% as markets await the outcome of the ECB’s meeting today. The expected announcement that QE will be extended into at least September next year, the currently agreed programme of bond buying is due to expire in March, will most likely result in a boost to equities and other income earning assets, applying renewed pressure to gold. Silver spot prices, however, showed strong gains yesterday, up 2.5%, though today has seen a small 0.1% retreat.
Base metal prices closed largely down yesterday on the London Metals Exchange despite having risen earlier in the day ahead of option declaration. Copper for 3-month delivery finished Wednesday down 0.7% with today seeing the drop extended by a further 0.3%.