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OPEC uncertainty may pressure gold price
Published on 25.10.2016 23:44

The oil price has broken down through the $50 mark for a second straight day today as fears grow that more OPEC cartel members may not stick to the deal agreed to freeze output, while inventories in the US are set to rise this week.

At 8.15pm (GMT) crude oil was trading at $49.80c down from $50.53c in yesterday’s trading.

Iraq, which is the second largest producer in OPEC has asked to be excluded from the output freeze as the country will need the funds to fight the current war with the Islamic State which raised speculation that other countries may soon follow the same tone.

If indeed some other OPEC members renege on the deal, some predict that the whole process will fall apart and in turn drive the oil price significantly lower.

Such a scenario would not come as a big surprise, as history shows that previous deals to cut output by OPEC members have failed to materialize..

Also weighing on the gold price is a report by the U.S. government's Energy Information Administration due out tomorrow where analysts expect oil stockpiles rose by 800,000 barrels last week which would be well up on the previous week’s figures of minus 5 million barrels.

"The sentiment is it's a bit more negative," said Scott Shelton, energy futures broker with ICAP in Durham, North Carolina. "There are some expectations that we can see a crude build." he added.

Some are now predicting that until a solid deal is reached there will be more volatility in the oil market with the prospect of the price drifting lower in the weeks to come,

"Expect more of this choppy interplay until more concrete news emerges, as speculative buying runs into record producer selling of the futures contracts for hedging," noted Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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