The price of oil was seen at a three month high yesterday in intraday trading. The front-month contract on Brent (ICE) even breached 113 USD per barrel (USD/bbl) level after comments of a Saudi official who said that the kingdom had cut production of oil in the last two months of the previous year. However, lower production is probably related to a decline of domestic consumption and partial stock draw. At the time of writing of this report, the price of oil is seen back below 112 USD/bbl.
In the months to come, the oil market will primarily focus on the signs of a global economic recovery on the one hand, and on the rising production on the other. The signs of recovery have recently occurred in China in particular (the HSBC PMI index has been above the key level of 50 points in the last 4 months) while the prospects for the U.S. economy are also reasonable (however, its oil consumption has been steadily falling in recent years). By contrast, we believe that the significantly rising production of certain countries (the United States, Iraq etc.) should predominate and drive the price of oil slightly downwards, notably in the long term. The question still is how OPEC would respond to production cuts, if any, as the cartel is divided as to which members should participate in such cuts. The situation in the Middle East – particularly in Iran in the long term – continues to pose a risk with a potentially positive impact on the price of oil, which is likely to be partly prevented by an IEA intervention.
The price of gold gained more than 1 percent yesterday as EUR/USD surged after surprising outcome of the ECB meeting. Moreover, according to Reuters, the Asian demand has shown some signs of recovery ahead of the holiday season and due to lower prices and stronger local currencies; for example, the price of gold in terms of Indian rupee is seen by about 6 percent lower than in the end of November.