Crude oil prices are still coming down this morning as the political crisis in Italy is dampening any risk appetite among buyers. Also working against the oil price is the appreciation of the dollar and Russia’s and Saudi Arabia’s planned output increases.

Brent crude is up 0.34% at $75.75/bbl this morning and WTI is trading up 0.12% at $66.61/bbl, the gap between the two kept wide by pipeline bottlenecks and oversupply in the US.

We are likely to be in for a few weeks of restrained price moves until OPEC’s next meeting on 22 June. Production surveys for the oil cartel which are expected to be published by the end of this month are likely to show that OPEC’s production has been significantly below the agreed amount once again as oil production in Venezuela has probably declined further.

“This is likely to fuel speculation that OPEC could decide at its upcoming meeting to raise production more significantly,” says Commerzbank.

A public holiday in the US on Monday means that US inventory data will be published a day later than usual. The API will be releasing its data after close of trade this evening, with the US Department of Energy publishing the official figures Thursday afternoon. A slight inventory reduction is expected following last week’s sharp rise in crude oil stocks.

Italy crisis fuels gold demand

Italy’s political strife is continuing to affect the bonds market and the euro rate causing a general exodus from Italian bonds and some influx into the safe-haven of gold, albeit mostly euro-denominated gold.

At its peak, the gold price gained 1.6% or €18 and traded shortly above €1,130/oz, its highest level in nearly a year but it has turned around since. The dollar prices has also moved slightly lower, down 0.16% at $1,296.90/oz.
Gold followed the fluctuations in yields on Italian government bonds, or more precisely the change in the yield spread between ten-year Italian and German government bonds,” says Commerzbank.

It hit a high when the yield spread climbed to over 300 basis points but has subsequently lost most of it because the yield spread narrowed again.

Asian demand has been lower in April, according to data from the Swiss customs authorities. Switzerland, the main European hub for sales of gold to Asia, exported only 43.7 tonnes of gold to China and Hong Kong in April, the lowest volume since September. India, the other traditionally large gold buyer, imported only 26.2 tonnes of gold from Switzerland in April.

If the Italian political drama clears over the coming weeks without Italy threatening to come out of the euro the market will start taking a more serious note of the Asian numbers. However, if Italy’s domestic politics continues to threaten the euro gold prices are likely to remain supported over the summer months.

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Commodities and Shares Editor
30th May 2018
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