Chapter 3  April 06th : Gold Approaches All-Time High

Energy – Saudis hike official selling prices

Price action in the oil market was fairly muted yesterday despite the Energy Information Administration reporting relatively large declines in both US crude oil and refined product inventories. US commercial crude oil inventories fell by 3.74MMbbls over the week. This, however, was slightly less than the 4.3MMbbls the API reported the previous day. In addition, crude oil inventories at Cushing fell by 970Mbbls, which is the fifth consecutive week of declines at the WTI delivery hub. Despite this tightening, the prompt WTI timespread continues to trade in contango, although admittedly a very narrow contango. On the refined product side, gasoline and distillate stocks declined by 4.12MMbbls and 3.63MMbbls respectively. Inventories for both these products are at their lowest levels for this time of year since 2014. Implied demand numbers were also fairly strong over the week. Gasoline demand was up 150Mbbls/d to average 9.3MMbbls/d compared to a 5-year average of around 8.5MMbbls/d – although the 5-year average is heavily skewed due to the Covid demand hit seen in 2020. Overall, the EIA report was constructive for the market.

Unsurprisingly Saudi Arabia raised its official selling price (OSP) for all of its grades of crude oil into Asia for May. These increases come after Saudi Arabia and a handful of other OPEC+ members shocked the market last weekend by announcing surprise supply cuts. Arab Light into Asia was raised by US$0.30/bbl to US$2.80/bbl over the benchmark – this is the third consecutive month of increases in the OSP as China sees a recovery in demand following the dropping of its zero-Covid policy. OSPs for all grades into the US were also increased for May, whilst prices into Europe and the Med were left unchanged MoM.

Metals – Gold flirts with all-time high

Spot gold has closed above the US$2,000/oz mark this week for the first time since March 2022 after US data showed the job market is loosening, fuelling expectations that the Fed is nearing the end of its monetary tightening cycle. Gold has also benefitted over the last month from increased safe-haven demand given concerns from the banking sector. Markets will be keeping a close eye on the US jobs report later this week and whether this takes the gold market to striking distance of its all-time high of US$2,075.47/oz made in August 2020.

Iron ore extended its decline yesterday following China’s National Development and Reform Commission (NDRC) urging futures companies to not exaggerate price moves in the iron ore market. These warnings have weighed on sentiment with prices down around 6% so far this week. The NDRC said it will continue to keep a close eye on the iron ore market and continue to increase its regulatory oversight to maintain the normal order of the market.

Source: ING

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