Commodities: Crude firmly lower amid unease about Opec's price-control abilities

Andrew Schonberg Sharecast | 20 Mar, 2017 16:06 | | |

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Crude-oil futures are firmly down Monday afternoon with markets increasingly uneasy about cartel Opec's ability to control prices amid a global supply glut and US shale output.

At about 15:23 GMT, on the energy front, Nymex-priced WTI crude was down 0.86% to $48.36 a barrel, and Intercontinental Exchange-traded Brent was 0.31% lower at $51.60 a barrel.

Oanda senior market analyst Craig Erlam said the black liquid's softness Monday followed oil rig data from Baker Hughes on Friday that revealed another increase.

This time, there were 14 more rigs, taking the total to 631 - for a ninth successive week of gains.

"The US shale industry has been quick to respond to last year's rebound in oil prices, which was largely driven by an agreement between Opec and some non-Opec producers to cut output," said Erlam.

He noted that while producers remained confident the measures taken and high level of compliance would achieve market balance, price action suggested traders were not buying it.

"The resurgence in US shale is overshadowing the efforts of other producers for now and while US stockpiles continue to build, the cuts still far outweigh the gains in the US."

It was a point that Nicholas Hyett, equity analyst at Hargreaves Lansdown, recognised, too.

"The fall (in crude) comes despite dollar weakness and, we believe, is a reflection of ongoing concerns about Opec's ability to control oil prices, as US shale producers expand to fill the gap left by the cartel’s production cut," said Hyett.

To take note of too is the latest US CFTC data, published on 17 March which revealed that large speculators had cut their bets on a rise in the oil price by the most since 2006.

Over the week ending on 14 March hedge funds slashed their net long position 23% to 288,774 lots.

Furthermore, on 17 March Russian energy minister Alenader Novak reportedly said it was too soon to discuss extending production cuts by several of the world's largest producers past June.

There was also some market chatter to be heard that JP Morgan had cut its 2017 Brent oil price forecasts to $55.75 a barrel.

Turning to metals, on Comex, gold was up 0.21% to $1232.8 an ounce, with silver up 0.18% to $17.45 an ounce and copper down 0.39% to 268.1 cents a pound.

Henry Croft, research analyst at Accendo Markets, commented that gold had slipped back to $1231, intersecting support having "overcome resistance at that level overnight."

Erlam added the nil-yielding yellow metal had been spurred on by the weaker dollar.

"Gold is currently trading higher again on the day but the rally appears to be losing some steam," he added.

"To the downside, Gold could face a test around $1,220, with $1,200 below being a potentially important level. To the upside, $1,236-1,237 should be an interesting test of resistance."

As for three-month industrial metals on London Metals Exchange, these were all modestly firmer with zinc leading and followed by aluminum, tin and copper.

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