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Oil Prices Continue Downtrend on U.S. Production as Gold Gains

As markets opened in London this morning oil prices had added to recent losses with Brent crude slipping by a further 20 cents to $55.03 a barrel, a loss of 0.36% on yesterday’s closing position. WTI had a steeper 0.57% drop after shedding 30 cents a barrel, down to $52.33.

The spread between Brent crude and WTI has become more pronounced since OPEC and a number of big non-OPEC oil producers such as Russia announced production cuts of 1.8 million barrels a day, designed to boost oil prices by rebalancing a global supply glut. In November, the divergence between Brent crude and U.S. produced WTI was closer to a difference of $1. The Brent crude premium for oil to be delivered in March has since grown to around $2.7 a barrel as OPEC supply tightens and production levels in the U.S. grow.

Goldman Sachs has estimated that U.S. oil production, already up 6.3% since July to 9 million barrels per day, will add another 290,000 barrels a day over the course of this year. Analysts, including Jefferies, believe increased U.S. production eating into OPEC cuts is likely to cap Brent crude gains over the course of 2017 and prevent progress beyond $58 a barrel. Jefferies are however more optimistic on potential price gains into 2018 with a price target of $71.75 for next year.

A weakened dollar and financial markets rattled by the fallout from Donald Trump’s Friday order to ban passport holders from several majority-Muslim states from entering the U.S. for 120 days has helped gold prices. The precious metal took a hit last week as equity markets rallied strongly on Trump’s infrastructure plans but the turn in market sentiment since has helped it claw back losses.
With equity markets slumping this week on concerns as to what turn Trump’s aggressive policy moves may take next, spot gold prices added a little over 0.5% yesterday, up to $1,201.07 oz. Futures recorded a similar gain to settle at $1,200.1 oz.

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