Oil Leads Commodities Complex Higher
On the whole it was a positive week for commodities with gold, oil, copper, silver and iron ore all enjoying gains.
Oil led the way with President Trump’s ending of American participation in the Iran nuclear deal (with European countries, Russia and China) leaving prices higher over the week, despite Friday’s slight retreat.
Friday’s dip from new 3 ½-year highs on Thursday, left futures prices up for a second week.
In New York, June West Texas Intermediate crude futures fell 66 cents, or 0.9%, to settle at $US70.70 a barrel, after closing at $71.36 Thursday—the highest since November 2014. The contract was up 1.4% for the week
In London the July Brent crude contract eased 35 cents, or nearly 0.5%, to settle at $US77.12 a barrel.
For the week, the Brent contract price rose about 3%.
Bank of America Merrill Lynch on Thursday predicted a Brent price target of $US90 a barrel by the second quarter of next, while noting a “risk of $100 a barrel” oil next year. “Although, we are concerned these market dynamics could unfold over a shorter time frame,” the analysts wrote in a note.
Trump’s move to abandon the 2015 international agreement to curb Iran’s nuclear program paved the way for the reimposition of US economic sanctions on the Islamic Republic.
The expectation that sanctions will again frustrate Iran’s oil industry and limit global supply has helped to provide support to oil. But these sanctions won’t be imposed for around six months.
Under previous sanctions, Iran’s oil exports were cut by around a million barrels a day, but it still sold huge amounts of oil to China, South Korea, Japan and North Korea, according to oil industry reports.
But because the European Union and other intentional players have decided to stick with the deal,US sanctions are likely to affect only up to around 350,000 barrels a day, once reinstated within six months’ time, according to analysts at MUFG Bank.
Saudi Arabia hinted last week that it could up its own production to make up for lost oil output from Iran. It is possible OPEC could cut its 1.8 million barrels a day production cap at next month’s meeting in Vienna and increase quotas for member countries, in agreement with Russia.
There is one other problem that OPEC is finding hard to handle and that is the gradual implosion of the Venezuelan oil industry as output falls and exports vanish. That is adding to the impact of the OPEC-Russia cap.
Friday also saw more signs of ongoing growth in US oil production. Services group, Baker Hughes reported that the number of active US oil rigs rose for a sixth week in a row, by 10 to 844. The total active US rig count, which includes oil and natural-gas rigs, climbed by 13 to 1,045.
US gold futures eased on Friday, but still managed finished higher over the week ago as the US dollar eased from recent highs.
Comex June gold fell $US1.60, or 0.1%, to settle at $US1,320.70 an ounce in New York. That was a gain of around half a per cent for the week and the first rise in four weeks.
A weak US consumer inflation report and offered little help to the rising inflation risks story that has helped the US Federal reserve push up interest rates.
The US Dollar Index saw a weekly decline of about 0.1%.
In other metals trading, Comex July silver fell less than penny to $US16.752 an ounce—about 1.4% over the week. And Comex July copper ended less than 0.1% higher at $US3.112 a pound, with prices up 0.8% for the week.
Meanwhile, Chinese iron ore prices strengthened on Friday following increases in the mainland steel and futures markets.
The Metal Bulletin 62% Fe Iron Ore Index ended at $US67.42 a tonne, up by 59 cents a tonne.
That was less than a dollar higher than the previous week’s close of $US66.28 a tonne.
In London, LME aluminium fell to its lowest in a week on Friday and ended the week in negative territory as the market continues to correct after the recent surge in price surges on the back of American sanctions against the world’s largest producer in Russia and its major shareholder.
LME aluminium futures slipped 2% to $US2,288 a tonne.
LME copper ended down 03% on Friday at $US6,940 a tonne, lead finished 1.7% lower at $US2,345, tin added 0.8% to $US21,000, zinc was flat at $US3,085 and nickel rose 1.3% to $US14,055 a tonne.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.