Oil prices maintained the positivity of the past couple of days by holding onto gains and edging up ever so slightly early this morning. As markets opened in London, Brent crude had added 5 cents to $55.68 and WTI inched up 3 cents to $53.03. Oil prices have recovered to close to their January peaks this week but, lacking any strong catalysts and being tugged back and forward by the competing forces of rising U.S. production and OPEC-led supply cuts, having been trading within a $5 range in 2017.
It is possible that Monday’s OPEC January production report may spur some further movement to the upside, testing the recent range’s resistance levels. Most market analysts believe that January compliance to supply cut commitments of 1.8 million barrels a day has been over 70%. Evidence that adherence has been towards the higher end of the forecast range, between 80% and 90%, would encourage optimism over the pace of inventory rebalancing likely to be seen over the first half of the year.
Despite the U.S. dollar strengthening yesterday on Trump comments on impending corporate tax cuts to be announced by his administration in the next two to three weeks, oil prices were supported yesterday by an increase in China’s January crude imports. January imports for the first month of the year, traditionally lower due to the Lunar New Year break, were 27% up on last year. The data further supports evidence of growing Chinese demand for crude after December saw record import levels of 8.57 million barrels a day. While, as covered yesterday, the pace of growth in Chinese oil demand is dropping, the fact that it is still rising has today been seen as a positive by the market.
The potential for disruptions resulting in escalating tensions between the U.S. and Iran is another factor though evidence of increasing production out of Africa, adding to quickly growing U.S. production, contributed to tempering gains. BMI Research noted that combined Nigerian and Libyan crude output rose by 200,000 bpd in January and that another 600,000 bpd could potentially be added over the next 6 months if unused capacity is opened up. BMI added that these increases, substantial spare capacity in Saudi Arabia and slowing growth in demand from emerging markets and China will keep oil prices below the $70 a barrel level over the next few years.
Gold prices dropped today on the stronger U.S. dollar and buoyant equities markets as the mood moved to risk on following Trump’s corporate tax cuts statement. Before markets opened in London, spot gold had slid by 0.5% to $1223.93 oz. Gold prices have been retreating since hitting 3-month highs on Wednesday as riskier income earning assets have gained in popularity. Gold futures prices fell by double those of spot gold, down 1% to $1223.3 oz., suggesting risk-on markets will see strong gains if a significant package of corporate tax cuts are announced within the next month.