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Oil prices continued their up-and-down pattern yesterday on ‘will they, won’t they?’ sentiment around the true extent of output cuts by OPEC and non-OPEC oil producers and what impact they will have on global oil supplies. Having soared on Monday and consolidated on Tuesday following the declaration of 11 major non-OPEC oil producing countries that they would join forces in supporting the output cut commitment of OPEC with their own 558,000 bpd joint cut, prices have again dropped back.
Nonetheless, prices would be expected to rise in the lead-up to the Chinese New Year, the commercial peak of the year for gold. Inflation, a boost to gold price, is also considered in some quarters to be being underestimated significantly as a factor. Higher inflation next year, the market consensus, would be expected to lead to a gold rally.
Brent crude had dropped back by 1.08% to $55.12 and WTI 1.3% to $52.29 in early morning trading in London. Higher than expected U.S. inventory stocks and data that November rises in OPEC may also have been higher than initially thought again produced doubt in the minds of traders as to how quickly or effectively supply levels will fall. An expected strengthening of the U.S. dollar following today’s Federal Reserve statement also contributed to the retreat in oil prices.The International Energy Agency released figures yesterday which indicated that, at 34.2 million barrels a day, OPEC output for November rose by 500,000 barrels a day above official forecasts. The scale of November’s output increase calls into question how much impact the 1.2 million barrels a day cut, the first stage of which will come into effect from January 1st, will have in leading to a supply deficit big enough to reduce inventories significantly. However, despite the November output increase, the IEA still believes that if promised cuts are met strictly they will lead to a 600,000 bpd supply deficit in the first half of 2017.
