Oil
Output from Opec members bound by supply targets fell by 400,000 barrels per day in December, as the group more than complied with a deal to try to boost oil prices.
Supply from 11 exporters was expected to average 27.1 million bpd in December, down from about 27.5 million bpd in November. Supply is likely to decline further in January after Opec agreed earlier this December to curb production by an additional 2.2 million bpd from January 1.
Top world exporter Saudi Arabia and fellow Gulf producer the United Arab Emirates have led the cutback in December. Saudi Arabia was expected to lower output by 300,000 bpd to 8.2 million bpd. Output from the UAE was expected to be down 130,000 bpd at 2.2 million bpd.
There was little sign of supply curbs from Iran and Venezuela, which need relatively high prices to balance their budgets and are usually among the first in Opec to support measures likely to boost the cost of oil.
Iran, Opec’s second-largest producer, is forecast to increase supply by 170,000 bpd to 3.85 million bpd, while Venezuelan output is steady at 2.32 million bpd.
Output from Iraq, which is excluded from Opec’s agreements to limit supplies, is forecast to rise to 2.45 million bpd from 2.27 million bpd in November, as a result of higher exports from the north of the country. Including Iraq and Indonesia, Opec production in December was forecast to decline by about 200,000 bpd to 30.4 million bpd.
On December 30, oil fell below $39 a barrel, pressured by gloom over the outlook for the world economy, which outweighed tension in the Middle East. US crude was down at $38.81 a barrel, having earlier touched a session high of $40.39. London Brent fell 89 cents to $39.66.
Oil is heading for a loss of nearly 60 per cent this year, its biggest annual fall since futures began trading 25 years ago. It has dropped more than $100 from a record peak above $147 a barrel in July. Analysts said market sentiment was partly being led by the dollar and moves on stock markets.
The Organisation of Petroleum Exporting Countries has agreed its biggest ever production cut of 2.2 million barrels per day (bpd) to fight the oil market slide. The group has cut output three times in an effort to remove about five per cent of world supply.
Prices have fallen on evidence of Opec compliance with its biggest ever production cut agreed earlier in December to try to halt the market’s slide. Libya has told oil firms to curb output by 270,000 barrels per day from January 1, more than the reduction it needs to make under Opec’s agreement to cut output.
The Abu Dhabi National Oil Co, (Adnoc), the UAE’s main producer said it would cut January and February oil exports by much more than some refiners had expected.
Adnoc said it would continue to supply its customers of Murban crude with 15 per cent less than normal contractual supplies, as it did in December, while Upper Zakum supplies will be reduced by three per cent from the norm.
Adnoc later said in another statement that it would cut February Murban and Upper Zakum allocation by15 per cent, and reduce Lower Zakum and Umm Shaif allocations by 10 per cent each.
The allocations were among the first concrete examples that Opec exporters were implementing the Organisation of the Petroleum Exporting Countries’ December 17 deal to cut supplies by 2.2 million barrels per day.
Gold
In the London market, gold was firmer on December 29, tracking a climb in crude oil prices on the back of burgeoning tensions in the Middle East although it retreated from earlier highs as oil gave up some of its gains.
Weakness in the dollar is also supporting gold, while a slide in the value of sterling to a record low versus the euro helped to take the precious metal to a new all-time high when priced in British pounds, according to Reuters data. Spot gold reached a session high of $889.55 an ounces, its strongest level since October 10.
In sterling terms, gold hit a new all-time high of 605.07 pounds an ounce, up from 592.40 pounds of on December 26. US gold futures for February delivery climbed to $877.20.
Geopolitical tensions increase interest in bullion as a safe haven investment and are also a prime factor driving oil prices, which also influence gold, higher.
Oil rose nearly 10 per cent to a high of $42.20 a barrel as the violence served as a reminder that political tensions could threaten Middle East crude supplies. However, they later slipped back below $40 a barrel.
The other main external driver of gold, the dollar, weakened against the euro, helping to lift bullion prices. A softer dollar typically supports gold, which is often bought as an alternative investment to the US currency.
Among other previous metals, silver tracked gold higher to $11.04/11.12 an ounce from $10.64 late on December 26. Earlier it touched a near two-week high of $11.23 an ounce. Investment demand for silver-backed exchange-traded funds remains strong.
The world’s largest silver-backed ETF, the Shares Silver Trust, said its bullion holdings rose more than 30 tonnes or 0.5 per cent on December 26 to their highest since late October.
The New York-based trust has recorded an inflow of more than 106 tonnes of silver since the beginning of December.
Platinum group metals also climbed, with platinum touching a session high of $931 an ounce, its strongest in 10 weeks. Later it was quoted at $903.50/913.50 an ounce against $888.50.
Fears over falling demand from the car industry, which accounts for around half of global platinum consumption, has knocked platinum down by as much as two-thirds from the all-time high of $2,290 an ounce it reached in March.
Spot palladium rallied nearly 7 per cent to a session high of $186.50, lifted by gains in other previous metals and in oil.
Aluminium
Aluminium fell on December 23, on demand concerns as inventories continued to soar, while the weaker dollar offered little support. Aluminium stocks in London Metal Exchange warehouses jumped 49,000 tonnes to above 2.3 million tones and have soared more than 475,000 tonnes in December alone.
Aluminium for three-month delivery on the LME fell 1.4 per cent to a low of $1,490 a tonne. The metal, used in transportation and power, was trading as $1,495 a tonne from $1,511 at the close on December 22.
The dollar slipped further, making base metals cheaper for holders of other currencies, but offered little support. Three-month copper, which has dropped almost 60 per cent this year, was steady in thin trading. Copper inventories rose 650 tonnes to 337,350, the highest level since February 2004.
Aluminium inventories have surged to the highest level since September 1994. Rising stocks have capped a rally that aluminium was trying to stage last week following figures from the International Aluminium Institute that showed production cutbacks were starting to have an impact.
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