AFKI Commodities Report: Geopolitics And Lower U.S. Supplies Support Oil

AFKI Commodities Report: Geopolitics And Lower U.S. Supplies Support Oil

Crude oil prices jumped the most in a month on initial reports of the Malaysian Airlines passenger plane crash in eastern Ukraine on July 17. But oil markets have since been relatively calm amid the political fall-out from the reported shooting down of the aircraft and a plethora of other geopolitical crises.

Not least of these is Israel’s ground offensive in Gaza as well as renewed violence in Libya and the ongoing conflict in Iraq. Nevertheless, geopolitical concerns are firmly back on the radar and will keep oil markets on alert.

Brent crude for September delivery on London’s ICE Futures Europe exchange gained just over 1 percent to reach $108.50 a barrel after reports of the Malaysian Airlines crash started circulating. August’s West Texas Intermediate (WTI) on the New York Mercantile Exchange (Nymex) jumped 2 percent to $103.95 a barrel.

As this week opened, Brent was trading below $107 a barrel while WTI was priced just off $103 a barrel. By midweek, Brent was back above $108 a barrel on the prospect of reduced supplies from Libya and news of a sharp drawdown in US crude inventories last week. September Brent closed at $108.03 a barrel on ICE Futures Europe on July 23 while Nymex WTI for September (the August contract expired on July 22) finished at $103.12 a barrel.

Earlier in the day, the U.S. Energy Information Administration (EIA) reported U.S crude oil stocks fell by 4 million barrels to 371.1 million during the week to July 18. The energy body also said crude inventories at the key Cushing, Oklahoma storage hub, the delivery point for the WTI crude contract, declined by 1.5 million barrels to 18.8 million. But price gains were capped on account of an increase in the country’s gasoline and distillates stocks, up by 3.4 million and 1.6 million barrels respectively last week.

Libyan oil production has fallen back, reversing a recent increase, amid renewed fighting around the country’s airport at Tripoli and in the eastern town of Benghazi. Reuters, quoting a National Oil Company (NOC) spokesperson, reported the country’s oil output as of July 21 was around 450,000 barrels per day compared with 555,000 barrels a day on July 17.

The downturn is due to lower production at the El-Feel oil field which is operated by NOC and Italy’s ENI. The oil field was forced to cut production on account of the fresh fighting between two rival militias for control of Tripoli’s airport.

Libya has yet to load any oil from the eastern ports of Ras Lanuf and Es Sider. Earlier this month, rebel forces handed back control of the two terminals to the government after blockading the two facilities for nearly 12 months.

Gold dips to one-month low

Gold initially rallied on safe-haven buying following the reports of the Malaysian Airlines crash, with the precious metal gaining $17.10, or 1.3 percent on the day to settle at $1,316.90 an ounce on the Comex division of Nymex.

However, gold dipped back below $1,300 an ounce at midweek, with the August contract on Comex slipping to  its lowest in a month at $1,288 on July 24 as the market refocused on the U.S. interest outlook. The previous day August gold had finished at $1,304.70 an ounce.

Physical demand for the precious metal is facing strong headwinds, with China’s gold demand continuing to falter and little support seen for Indian gold demand after India’s finance minister Arun Jaitley indicated the country’s gold import restrictions are likely to remain in place, along with other steps taken by the previous UPA government in order to control the country’s widening current account deficit.

China’s demand plunged 19.4 percent to 569.45 tonnes in the first six months of 2014 compared with the same year-earlier period, the China Gold Association said in a July 24 statement. The lower demand is due partly to large purchases last year, according to the trade body.

Pgm prices ease despite supply worries

Palladium has eased back from the 13½-year high of $886 an ounce, spot basis, reached last week after the imposition of a fresh set of economic sanctions by the U.S. administration on Russia.

Despite the likelihood now of even harder-hitting sanctions, at least from the U.S., and worries over how they could impact Russia pgm supplies, the spot precious metal at midweek was fixed at $869 an ounce on London’s Platinum and Palladium market. This was a similar level to where the spot metal had been trading before last week’s events in eastern Ukraine.

Nymex palladium futures were trading a tad lower this week, with the September contract settling at $874.80 an ounce on July 23. A week ago, September palladium had finished at a 13-year high of $876.75 an ounce.

Spot platinum was also lower on the week, with the precious metal at $1,469 an ounce in the pm spot fix in London on July 24. A week ago, platinum was fixed at $1,497, a 10-month high. Meanwhile, Nymex platinum futures for October finished largely unchanged on the week at $1,486.70 an ounce.