Oil and Gold Review on May 23, 2017
Oil
The proposal of the US President Donald Trump on the sale of half of the strategic reserves of American oil surprised the energy markets on Tuesday, as this will discourage OPEC's attempts to raise prices.
In terms of the budget, published on Monday evening, the US administration is proposing to gradually sell off strategic oil reserves from October 2018, to get $ 16.5 billion. The US has the largest strategic oil reserve, amounting to 688 million barrels, and the sale of half of the reserve for 10 years is equivalent with entering the market with 95,000 barrels per day, which is approximately 1% of the current production in the country.
The budget plan was published the day after Trump's visit to Saudi Arabia, the actual leader of OPEC, as part of a foreign tour.
The US can freely sell strategic reserves, as oil production in the region has increased by 49% over the past five years. But such a move undermines attempts by the OPEC cartel to get rid of the excess supply in the market by cutting production this year and until 2018.
"This will make it more difficult for OPEC to stabilize the market," said an independent oil analyst and economist.
The offer led to a decrease in prices for oil futures of the coming month.
However, this is not the final budget plan, since the project still has to pass the Congress, which in the past rejected many initiatives of the White House.
The strategic reserves equal to 90 days of consumption were created after the member countries of the Organization for Economic Development and Cooperation (OECD) pushed the oil crisis of 1973, also known as the Arab oil embargo.
The United States had previously sold oil from the strategic reserve because of fears about disruptions in the supply of commodities: at the beginning of the war in the Persian Gulf in 1991, in 2005, when Hurricane Katrina hit the coast of the Gulf of Mexico, and in 2011 - due to a sharp decline in the production of raw materials in Libya.
In December, the US Congress approved the sale of oil from the strategic reserves of $ 2 billion needed for re-equipment of storage facilities. In January, the US Department of Energy sold 6.4 million barrels of oil from the country's strategic reserve and another 10 million were sold in February.
The markets reacted on the news – at the moment of writing, WTI crude oil fell 0.08% and Brent crude oil fell 0.11%.
Gold
Gold prices stabilized on Tuesday, as investors took a pause to monitor the gold price position after the suicide bombing in Manchester, UK. As a result of the terrorist attack, at least 22 people were killed, and another 59 were injured.
The explosion occurred after the concert of American singer Ariana Grande on Monday.
British Prime Minister Theresa May said that the incident is regarded as a terrorist attack. If this version is confirmed, it will be the most lethal attack in the UK since the explosions in London in July 2005, when 52 people died.
"At the moment, prices for precious metals are relatively stable, despite the tragic news from Manchester," said Edward Meir, an analyst at INTL FCStone.
At the moment of writing, gold slightly fell 0.12% to $ 1,259.88 per troy ounce, compared to $ 1,260.06 an ounce at the close of trading on Monday.
Gold futures in the US fell $ 0.6 to $ 1,260.9 an ounce. Silver was traded at $ 17.17 an ounce compared to $ 17.12 by the close of trading on Monday, platinum rose 0.38% to $ 953.90 compared with $ 946.00, and palladium jumped 2% to $ 774.92 against $ 770.50.
Prices found support in the political tensions in the US, caused by the political scandal surrounding President Donald Trump, and the weakening dollar against the euro. "News from Washington, most likely, will provide continued support to the metal," says a MKS report.
The US dollar index, which shows the purchasing power of the dollar against a trade-weighted basket of six major currencies, was traded at 96.83 at the beginning of the trading session on the London Stock Exchange. On Monday, the dollar index fell to a six months low at 96.70, retreating to the level of presidential elections in November last year.
The proposal of the US President Donald Trump on the sale of half of the strategic reserves of American oil surprised the energy markets on Tuesday, as this will discourage OPEC's attempts to raise prices.
In terms of the budget, published on Monday evening, the US administration is proposing to gradually sell off strategic oil reserves from October 2018, to get $ 16.5 billion. The US has the largest strategic oil reserve, amounting to 688 million barrels, and the sale of half of the reserve for 10 years is equivalent with entering the market with 95,000 barrels per day, which is approximately 1% of the current production in the country.
The budget plan was published the day after Trump's visit to Saudi Arabia, the actual leader of OPEC, as part of a foreign tour.
The US can freely sell strategic reserves, as oil production in the region has increased by 49% over the past five years. But such a move undermines attempts by the OPEC cartel to get rid of the excess supply in the market by cutting production this year and until 2018.
"This will make it more difficult for OPEC to stabilize the market," said an independent oil analyst and economist.
The offer led to a decrease in prices for oil futures of the coming month.
However, this is not the final budget plan, since the project still has to pass the Congress, which in the past rejected many initiatives of the White House.
The strategic reserves equal to 90 days of consumption were created after the member countries of the Organization for Economic Development and Cooperation (OECD) pushed the oil crisis of 1973, also known as the Arab oil embargo.
The United States had previously sold oil from the strategic reserve because of fears about disruptions in the supply of commodities: at the beginning of the war in the Persian Gulf in 1991, in 2005, when Hurricane Katrina hit the coast of the Gulf of Mexico, and in 2011 - due to a sharp decline in the production of raw materials in Libya.
In December, the US Congress approved the sale of oil from the strategic reserves of $ 2 billion needed for re-equipment of storage facilities. In January, the US Department of Energy sold 6.4 million barrels of oil from the country's strategic reserve and another 10 million were sold in February.
The markets reacted on the news – at the moment of writing, WTI crude oil fell 0.08% and Brent crude oil fell 0.11%.
Gold
Gold prices stabilized on Tuesday, as investors took a pause to monitor the gold price position after the suicide bombing in Manchester, UK. As a result of the terrorist attack, at least 22 people were killed, and another 59 were injured.
The explosion occurred after the concert of American singer Ariana Grande on Monday.
British Prime Minister Theresa May said that the incident is regarded as a terrorist attack. If this version is confirmed, it will be the most lethal attack in the UK since the explosions in London in July 2005, when 52 people died.
"At the moment, prices for precious metals are relatively stable, despite the tragic news from Manchester," said Edward Meir, an analyst at INTL FCStone.
At the moment of writing, gold slightly fell 0.12% to $ 1,259.88 per troy ounce, compared to $ 1,260.06 an ounce at the close of trading on Monday.
Gold futures in the US fell $ 0.6 to $ 1,260.9 an ounce. Silver was traded at $ 17.17 an ounce compared to $ 17.12 by the close of trading on Monday, platinum rose 0.38% to $ 953.90 compared with $ 946.00, and palladium jumped 2% to $ 774.92 against $ 770.50.
Prices found support in the political tensions in the US, caused by the political scandal surrounding President Donald Trump, and the weakening dollar against the euro. "News from Washington, most likely, will provide continued support to the metal," says a MKS report.
The US dollar index, which shows the purchasing power of the dollar against a trade-weighted basket of six major currencies, was traded at 96.83 at the beginning of the trading session on the London Stock Exchange. On Monday, the dollar index fell to a six months low at 96.70, retreating to the level of presidential elections in November last year.
Read also