Oil Price Volatility Continues with New Friday Morning Dip

ABN Amro casts doubt on sustainability of gold rally

Oil Price Volatility Continues with New Friday Morning Dip

After showing gains on Wednesday and Thursday as the U.S. dollar lost ground following Donald Trump’s first press conference, which left crucial policy questions unanswered, as well as evidence promised OPEC supply cuts are being implemented, oil prices have again dipped this morning. The reason? The dollar regaining some ground and speculation that supply cuts will not prove sufficient to rebalance global oil supplies. Oil prices fluctuations on the as yet unanswered question of full supply cut compliance, and if even that will prove sufficient, have proven to be the theme of 2017 so far. One and two day cycles of optimism and pessimism have been pushing prices in one direction and then the other.

During Asian trade earlier today oil futures added to Thursday’s gains, the highest in 6 weeks, with WTI up 0.19% to $53.11 a barrel and Brent crude 0.2% to $56.12. Price rises were supported by Saudi Arabia confirming they had cut output to less than 10 million bpd for the first time since February 2015 and Iraq’s oil minister reasserted his own country’s commitment to its quota, called into doubt in some quarters.

However, prices have fallen back again this morning on Groundhog Day doubts as to whether production cuts will prove enough to reduce global inventories, the U.S. dollar showing some recovery and poor economic data out of China. Chinese exports dropped by 7.7% in 2016, the second consecutive year of contractions. Despite December having seen record Chinese oil imports there is evidence this does not reflect the country’s fuel demands with exports of oil products refined in China increasing by 25% in December, despite November having already set a new record. This suggest a significant chunk of imports being designated for refinement processes to be subsequently re-exported.

Brent crude futures were down to $55.87 this morning in London and WTI to $52.92.

Gold prices hit their best level since November 23rd on Thursday, reaching $1,206.98 oz. but have since dropped back 0.24% to $1,192.20 oz. The last couple of days have seen oil and gold prices stick to their traditionally divergent correlation with their movements oppositely reflecting each other as market sentiment goes risk on and off and the dollar fluctuates.

Whether the rise in gold price is sustainable, however, has been called into question by Dutch bank ABN Amro. In a recent note to clients the bank showed that since the turn of the century, gold prices have risen in January over two thirds of the time regardless of whether the previous year had finished with positive or negative sentiment. The bank warns that gold is tracking U.S. inflation currently but if other U.S. economic data continues to come in positively then the gold rally, 5% for 2017, is likely to reverse.

Base metals had a strong day yesterday on the LME, gaining by an average of 2%. However, they have slipped back this morning with next week expected to be volatile in the run-up to Trump officially taking office in the U.S. Profit taking at the end of a positive week is also a factor. Zinc, lead, nickel and copper prices are down between 0.8% and 1% in early morning trading today.

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