The now familiar pattern of optimism followed by doubt on how effective and strictly enforced the OPEC and non-OPEC commitment to reducing oil output has today swung back to glass half empty mode and a dip for oil prices. Nagging doubts as to whether OPEC members will fully comply with their promises is nothing new and there is also no new evidence of any note which would lead to increased negativity on the part of market participants. However, the current cycle of doubt and optimism will almost certainly remain in place until there is clear evidence of oil exports and inventories dropping. Brent crude futures were early this morning down 17 cents to $56,29 a barrel. WTI saw a more modest decline on the back of record vehicle sales, 17.55 million cars and trucks sold over 2016, and declining oil inventories in the U.S., and fell by 9 cents to $53.17 a barrel.
Goldman Sachs has written in a note to clients that the investment bank sees $59 a barrel for Brent crude as the 2017 peak, expected to be reached around the halfway point of the year. In the shorter term, Brent crude could slip further, testing support at $55.43 a barrel, according to Wang Tao, a Reuters commodity analyst.
Meanwhile, gold price has continued to strengthen, helped by a slight retreat from record highs by the USD. Earlier in the week, the U.S. dollar touching a 14-year high had weighed on gold and it has advanced back roughly in line with the dollar’s retreat from those heights. In the early hours of this morning, spot gold was up 1.3% to $1178.37 oz., while gold futures also rose 1.2% to $1178.50 oz.
While gold price has recovered by more than 5% since its mid-December low following Trump’s surprise presidential election victory, the latest move is considered more of a U.S. dollar sell-off than a real gold rally. Wang To of Reuters expects gold to reach $1182 oz. by the end of the month, supported by the upcoming Chinese/Lunar New Year, a peak time for physical gold purchases in China, the world’s biggest gold market.
In base metals, a positive outlook for demand from China has led to fresh gains for copper prices, up 0.4% to $5668 a tonne early morning on the LME to add to a 2.6% overnight surge. The price jump came on news that China is planning a new railway construction plan that will lead to huge purchases of copper wire. Copper traders will also be keeping a close eye on negotiations with workers at BHP Billiton’s Escondida copper mine in Chile, the world’s largest. If talks over a new long-term labour contract for workers at the mine fail and lead to strikes in February, pushing copper prices up on supply concerns. Barclays analyst Dane Davis has commented that not only is 1.1 million tonnes of copper supply from Escondida at risk should talks fail but the outcome of negotiations will be used as a template by workers at other mines around the world.