Oil prices eased on Wednesday, pulled down by caution that a rally that lasted for most of the third quarter would not extend through the last three months of the year.
Oil prices dip over doubts that recent rally will last – Oil prices eased on Wednesday, pulled down by caution that a rally that lasted for most of the third quarter would not extend through the last three months of the year. “Fundamentals may not yet be strong enough to support a continued rally, especially in growth-dependent commodities such as oil,” said Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank in a quarterly outlook to investors. Traders said that a so-called market rebalancing is now well underway, meaning that demand is no longer undershooting available supply. The re-balancing is a result of strong consumption and also due to efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to cut output by around 1.8 million barrels per day (bpd) in 2017 and the first quarter of next year. “Compliance with the OPEC production cuts was over 100 percent in August (meaning members produced less than their quotas, on average) and U.S. oil inventories have been declining for several months now,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities. But rising production in the United States, which is not participating in the deal to cut output, has prevented prices from climbing further. U.S. production hit 9.55 million bpd in late September, its highest level since July 2017 and not far off its 9.61 million bpd record from June 2015. “The number of active drilling rigs in the U.S. increased last week, highlighting the fact that higher oil prices will inevitably lead to more production from U.S. shale. These factors have kept WTI oil in a relatively tight trading-range for several months now,” O’Loughlin wrote in a note to clients.
Gold Prices Bounce Off 8-Week Lows as Dollar Rally Fizzles – Gold prices bounced off their lowest level in around eight weeks on Wednesday, as the dollar lost some momentum after striking a one-and-a-half-month high, luring some investors back to the precious metal. Gold prices ended lower on Tuesday to notch their third-losing session in a row as growing optimism over the health of the U.S. economy and increasing expectations of a Federal Reserve rate hike in December boosted the dollar and Treasury yields. Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the greenback. A stronger dollar can weigh on commodities priced in the currency as it makes them more expensive in other currencies. Fresh comments from Fed Chair Janet Yellen will top the agenda for global financial markets on Wednesday, as they look for further hints on the timing of the next rate hike. Her comments will be monitored closely for any new insight on policy. Last week, Yellen said that the central bank plans to continue gradual rate hikes despite broad uncertainty about the path of inflation. Investors viewed her remarks as hawkish, which suggested that the Fed would raise rates in December, with further increases to follow in 2018. The U.S. central bank has already raised rates twice this year. Besides Yellen, market participants will also keep an eye out on a few U.S. economic reports to gauge how it will impact the Fed’s view on monetary policy in the coming months.
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