Commodity Update; Gold- 22 August 2014

Crude benchmarks closed another week lower this Friday as mixed industry data led to a surge in volatility and ultimately exacerbated existing expectations for rising supply to weigh on prices during the months ahead.

In detail, US refinery activity increased near to full capacity over the last fortnight as low prices managed to stoke real demand from the corporate world. The EEA’s weekly report also showed rapid draw-downs of inventories in the US, while Philadelphia Federal Reserve data highlighted a stronger manufacturing outlook across some parts of the country.

While such news should traditionally be price positive, it was offset by additional data from the American Petroleum institute which showed US production reaching a 28 year high during the year to date. This also served to reduce North American demand for imports from international markets, driving volumes to a 19 year low.  

Not only has excess supply weighed on prices in the US, it has also dragged Brent lower over recent weeks as declining US demand for international imports is expected to create a glut of European supply. Such expectations are amplified when considering projections for OPEC production to increase during the latter half of 2014, while the economic environment throughout much of the European continent remains uncertain.

Going forward, we do not foresee a break below $100 for Brent Crude given the OPEC price floor, which implies limited downside from the current level of $102.30.

In relation to WTI, rising supply could yet drive prices lower throughout the remainder of this year, although we believe that the current leg downward is close to having ran its course.

While there is indisputably a general lack of interest in the speculative long positions at the present time, we caution against overly bearish bets against oil benchmarks.

With the crisis in Ukraine still bubbling under the surface and international alarm over the islamist insurgency in Iraq and Syria now escalated in light of the murder of an American hostage this week; we believe that recent price action overlooks the potential for further supply concerns (constraints and disruption) to emerge during the weeks ahead.

Brent/WTI 10 Minute Intervals



Brent/WTI Year To Date View



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