Oil

Brent crude dipped below $80/barrel for the first time in four years. News revealed that Saudi Arabian crude production fell in October. Brent, the global benchmark, briefly slid below $80/barrel in intraday trading.

The front-month December contract settled down $1.29, at $80.38/barrel on ICE Futures Europe, the lowest settlement since September 2010. Light, sweet crude for December delivery fell 76 cents, to $77.18/barrel on the New York Mercantile Exchange, the lowest settlement since October 2011.

The US Energy Information Administration (EIA), in its monthly short-term energy outlook, cut its forecasts for oil prices in 2015. The agency slightly raised its global supply forecast and lowered its demand projection for next year. The EIA report released November 12, expects the benchmark US crude-oil prices to average $95/barrel this year and $77.75/barrel next year.

For Brent, the global benchmark, the EIA expects prices to average $101.04/barrel in 2014 and $83.42/barrel in 2015. In October, the agency called for price averages of $104.42/barrel this year and $101.67/barrel next year.

The EIA also said it expects Saudi Arabia to curb production. But it still cut its forecast for Brent crude prices in 2015 by $18/barrel from last month’s view, to an average of $83/barrel.

The EIA now expects US production to rise by 850,000bpd to around 9.4mbpd. A month ago it was forecasting a 960,000bpd rise next year. Total US crude oil production averaged some 8.9mbpd in October, and monthly average production was forecast to surpass 9mbpd in December, marking the third successive year of 1mbpd growth. The EIA projects total crude oil production will average 9.4mbpd in 2015. If realized, the 2015 forecast would be the highest annual average crude oil production since 1972.

In terms of global oil demand growth, the EIA sees world oil consumption growing by 1.12mbpd from 2014 to 2015, a slower pace than the +1.24mbpd predicted last month. The level of global demand next year was revised downward by 0.2mbpd to average 92.5mbpd in 2015, based on weaker global economic growth prospects for 2015.

The agency expects the Organisation of the Petroleum Exporting Countries’ (Opec) crude oil production to fall by 0.10mbpd in 2014 and by 0.15mbpd in 2015. EIA projects non-Opec production to grow by 0.95mbpd in 2015, a downward revision from the +1.17mbpd increase projected in last month’s report.

The US is the leading contributor to the forecast for non-Opec supply growth, increasing by 1.5mbpd in 2014 and 1.1mbpd in 2015. EIA revised downward its US total supply growth forecast by 0.1mbpd in 2015 due to the recent decline in crude oil prices and the expectation that West Texas Intermediate crude oil spot prices will remain near $80/barrel through 2015.

Falling crude oil prices will push down US gasoline prices. US weekly regular gasoline retail prices averaged $2.99/gallon on November 3, the lowest level since December 20, 2010.

Regular gasoline retail prices are projected to continue to decline for the remainder of the year to an average of $2.80/gallon in December.

According to Opec forecast that 2015 demand for its oil will drop to 29.20mbpd, or almost 1mbpd less than it is currently producing. The OPEC will meet in Vienna on November 27 to discuss whether to respond to the drop in prices by cutting output for the first time since the financial crisis in 2008.

Gold

IN the New York/London market, gold fell on November 13, as another sharp pullback in crude oil prices and improving US jobs data decreased bullion’s appeal as a hedge, and continued outflows from gold-backed ETFs suggested the precious metal is susceptible to further losses.

Gold is heading for the first consecutive annual loss since 2000 as oil prices at a four-year low eroded demand for an inflation hedge, and the Federal Reserve moves closer to the first rate increase since 2006. Global demand slid 2.5pc in the third quarter from a year earlier to the lowest level since 2009, the World Gold Council said.

Gold for December delivery lost 0.2pc to $1,159.70/ounce on the Comex in New York, on course for a fourth week of losses. Most-active prices are 3.7pc lower this year after losing 28pc in 2013. Silver for immediate delivery slid 0.6pc to $15.5645/ounce, heading for a fifth weekly drop. The metal retreated 20pc this year and dropped to $15.0681 on November 7, the lowest price since February 2010.

Russia’s central bank added to its reserves of bullion in the third quarter, according to the latest report from the World Gold Council. Russia has taken advantage of lower gold prices to pack the vaults of its central bank with bullion as it prepares for the possibility of a long, drawn-out economic war with the West.

The latest research from the World Gold Council reveals that the government has bought 55 tonnes of the precious metal - far more than any other nation - in the three months to the end of September as prices began to weaken. Russia’s currency has come under intense pressure since US and European sanctions and falling oil prices started to hurt the economy. Revenues from the sale of oil and gas account for about 45pc of the Russian government’s budget receipts.

The biggest buyers of gold after Russia are countries from the Commonwealth of Independent States, led by Kazakhstan and Azerbaijan.

In total, central banks around the world bought 93 tonnes of the precious metal in the third quarter, marking it the 15th consecutive quarter of net purchases. In its report, the World Gold Council said this was due to a combination of geopolitical tensions and attempts by countries to diversify their reserves away from the US dollar.

Published in Dawn, Economic & Business, November 17th, 2014