A slightly calmer ending to the week for commodities with oil showing signs of steadying, gold and sliver were stronger overall, copper gained and other metals were supported by investors.
Many of the price rises came despite the sharp fall in the value of the Euro (to 11 year lows), especially against the US currency (and the Aussie dollar for the that matter).
Usually a strong US currency undermines commodity prices, especially those priced in greenbacks – such as oil, gold and copper.
The sharp fall in the Euro against the US dollar in the wake of the Swiss central bank abandoning its currency peg certainly rocked markets – but instead of sending prices lower, it sent investors flooding back into gold.
Oil prices ended the week with small gains – in fact US crude futures had their first weekly rise in two months – but Brent crude futures again fell over the week.
Investors covering their positions (shorts buying oil to delivery it and take profits) in New York ahead of the expiration of the so-called front month futures contract tomorrow night helped, but another bullish report on the number of drilling rigs operating in the US also helped sentiment in American markets.
US prices also received a strong boost from a report by the International Energy Agency (IEA), which said there were signs lower prices had begun to curb production in some areas, including North America.
Baker Hughes, the US energy services company, said its latest weekly survey of operating rigs (or rig count) showed there were 1,366 rigs drilling wells primarily for oil in the US last week, the lowest number since October 2013.
Baker and Hughes said the number of oil-directed rigs has now fallen 15% from its recent peak of 1,609 in October last year, with big drops reported from the prime producing areas in North Dakota and Texas.
That helped US West Texas type light, sweet crude futures for delivery in February to rise $US2.44, or 5.3%, to settle at $US48.69 a barrel in New York. That gain pushed the US crude futures price up by 0.7% over the week, the first weekly gain since mid-November.
In London, March Brent crude jumped $US1.90, or 4%, to $US50.17 a barrel, but over the week Brent lost 2.2%, meaning it has lost ground now for eight weeks in a row.
The number of rigs being used to drill for oil in the US have dropped by more than 500 in the past six weeks, according to the Baker Hughes survey.
That was one of the largest drops since the survey started in 1987.
Many of these rigs are the highly specialised horizontal drilling type used in the shale fracking fields of North Dakota and Texas and the fall points to looming weakness in production from the heart of the shale oil boom from around the middle of this year.
If it happens and is sustained, it’s good news for other oil producing countries (especially OPEC) and for energy companies across the globe.
Bloomberg reported at the weekend: “Analysts including HSBC Holdings Plc say the decline shows that the Organization of Petroleum Exporting Countries is winning its fight for market share and slowing the growth that’s propelled U.S. production to the highest in at least three decades. OPEC’s decision not to curb its output amid increasing supplies from the U.S. and other countries has driven global oil prices down 58 percent since June.
“OPEC’s strategy is working, and it will be obvious in U.S. production by midyear when growth from shale plays will come to a halt,” James Williams, president of energy consulting company WTRG Economics in London, Arkansas, said by telephone Friday. “You can imagine the impact on any industry from a 50 percent impact on sales,” Bloomberg reported.
On top of the falling rig count in the US, the International Energy Agency dropped its estimate for the rise in non-OPEC oil production by 350,000 barrels a day, with much of that fall factored in to come from the US.
The agency said the slide in oil prices could help boost demand for oil from OPEC producers who have so far (at the instigation of Saudi Arabia) refused to cut production.
Gold meanwhile had another solid day on Friday, as did copper.
After its $US30 an ounce surge on Thursday in the wake of the Swiss abandonment of the euro peg for the franc, Comex gold futures had another solid day on Friday, ending up $US12 for February delivery to $1,276.90 an ounce. That was the highest official settlement since early last September.
But in after hours trading, it again rose to end the week around $US1,280, for a rise of 1.2% on the day or $US15 an ounce.
That left gold prices up 5% for the week in New York, the biggest weekly gain for 18 months.
March silver rose 65c to settle at $US 17.75 an ounce on Comex in New York trading. Silver prices jumped 8.1% last week, the biggest weekly rise for 18 months.
London Metal Exchange copper futures for March delivery rose 1.5% to close at $US5,715 a tonne ($US2.59 a pound). Lead, nickel and tin prices also rose on Friday. In New York, Comex copper futures for March delivery rose 2.3% to $US2.617 a pound.
That was after a solid gain the day before which helped trim the week’s losses to 6.2% thanks to that big mid-week sell-off which was driven as much by Chinese hedge funds and as weakening demand from end users looking to drive prices lower.
