Despite thin trading yesterday and this morning in Asia due to U.S. markets being on holiday Monday for Presidents’ Day, oil prices managed to record some modest gains yesterday. Yesterday, Brent crude was up a respectable 0.7%. This morning prices just about held steady in Asia, a fractional 2 cents slide taking the price of a barrel to $56.16. WTI fared better, adding a respectable 0.5%, or 27 cents, to $53.67, adding to a 0.5% gain yesterday.
Oil prices have received a fillip on reports that hedge funds are betting on OPEC cuts outweighing rising U.S. shale production later in the year and have taken out significant long positions. Long positions were increased last week as prices dipped on news that U.S. crude and gasoline inventories had reached record high levels. However, the hedge funds clearly believe that is a temporary state of affairs and global inventories will begin to drop in coming months pushing prices up towards the $60 level and possibly slightly beyond.
This week U.S. inventories data will come a day later than usual, on Thursday, as a result of Monday’s holiday. Oil market participants will be keen to see if inventories have continued to bloat or if there is evidence they have no peaked and can be expected to begin a decline.
One story line that could have an impact on oil prices before then is a report yesterday that quoted shipping data indicating that despite official production data from OPEC showing over 90% compliance with agreed supply cuts. Researchers PVM Oil Associates commented on the data that “non-Opec compliance was just 40pc in January, and that is not enough to curb global oversupply.”
PVM believe that while OPEC members may be doing a good job in sticking to their side of the bargain, shipping data shows that non-OPEC partners in the agreement to cut output by 1.8 million barrels a day until June, such as Russia, are not. The company’s spokesman, Tamas Varga, means that this necessitates an extension to OPEC cuts beyond June if the initiative is to prove successful in rebalancing the supply glut.
Elsewhere, gold prices have started the week by dropping back slightly. With further clues on the schedule of Federal Reserve interest rate hikes this year being waited for this week, when several Fed officials are due to speak, market participants are clearly reticent to bet on gold. Increasing expectations for a March interest rate hike would likely spell a correction for gold after a strong start to the year.
During the Asian session this morning spot gold prices dropped by 0.4% to $1233.21 oz., with Comex gold futures seeing an identical loss to settle at $1234.6 oz.
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