Sun, Jul 31, 2016 - Page 14 News List

Oil depreciates to three-month lows on glut concerns

AFP and Bloomberg, LONDON

An employee arranges 250g gold bars produced by Swiss manufacturer Argor Hebaeus SA into a storage tray at Aranypiac Kft in Budapest, Hungary, on July 20.

Photo: Bloomberg

World oil prices descended this week to their lowest levels in more than three months, rocked by renewed worries about a global supply glut and increased production.

The market extended its losses on Friday to a seventh straight day, as traders’ screens were awash with red. In morning deals in London, Europe’s main contract Brent North Sea crude slid to US$41.83 — the lowest level since April 18.

US benchmark West Texas Intermediate (WTI) struck US$40.57 a barrel — which was a trough last reached on April 20.

“Oil prices have continued their recent declines this week, sinking to the lowest level in three-months as the fundamental landscape for crude has become a little less supportive,” analyst David Cheetham at London broker XTB said.

The commodity has slipped nearly 20 percent since its peak this year above US$50 early last month as the crucial US holiday driving season comes to an end and temporary disruptions to output in Canada and Nigeria ease.

On Wednesday the US Department of Energy (DOE) reported the first increase in US crude stockpiles since May.

Crude reserves added 1.7 million barrels in the week to July 22, confounding market expectations for a drop of 2 million.

The DOE added that inventories were 13.4 percent up year-on-year, while gasoline or petrol stocks were 11.8 percent higher.

Supplies are now at levels not seen for two decades.

“The DOE inventories showed a first increase in 10 weeks on Wednesday in printing a rise of 1.7 million barrels for US stockpiles,” Cheetham added. “Higher inventories suggest either a lack of demand or an increase in supply, and the latter seems more plausible at the moment.”

Persistently high inventories have unnerved markets with the approach of the end of the US summer driving season — a time of peak demand for motor fuel.

“Expectations of tighter supply-demand balance on the market seem to be evaporating,” Gene McGillian of Tradition Energy said. “This correction is approaching levels where we’re going to start finding support. We might not have all the factors that helped drive us above US$50, but the core ones are still in front of us.”

“US production is still a million barrels below where we peaked a year ago,” McGillian said. “Oil demand seems to be a little uncertain, but there are some expectations global growth will continue to go and I think that’s going to provide support to the market in the coming weeks.”

Adding to downward pressure on crude is a slow, but steady rise in the number of rigs coming back online in the US.

PRECIOUS METALS: Gold futures gained for a second straight week as the US dollar weakened and the US economy grew less than expected in the second quarter, boosting demand for the metal as a store of value.

GDP in the US rose at a 1.2 percent annualized rate last quarter, a government report showed. The median forecast of economists surveyed by Bloomberg called for a 2.5 percent increase. A gauge of the dollar dropped for a fourth day and reached a four-week low.

Gold has rallied this year as the US Federal Reserve delayed raising interest rates, making assets that do not generate a yield more attractive for investors. Worries about the health of the global economy, the US presidential election and the UK’s decision to leave the EU have added to demand for haven assets, pushing bullion prices up about 28 percent this year.

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