Crude prices fall stalls despite inventories glut – Gold retreats 1 percent

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LONDON, June 10, (RTRS): Oil prices steadied on Friday after steep falls earlier in the week under pressure from widespread evidence of a fuel glut despite efforts led by OPEC to tighten the market.

Brent crude oil was up 5 cents at $47.91 a barrel by 1315 GMT, but still 12 percent below its opening level on May 25, when an OPEC promise to restrict production was extended into 2018. US crude was 5 cents higher at $45.69.

The Organization of the Petroleum Exporting Countries and other big producers have agreed to pump almost 1.8 million barrels per day (bpd) less than they supplied at the end of last year, and hold output there until the first quarter of 2018.

But world markets are still awash with oil.

“The challenge OPEC is facing is bigger than anyone thought a few weeks ago,” said Tamas Varga, analyst at London brokerage PVM Oil Associates.

US data this week showed a surprise 3.3-million-barrel build in commercial crude oil stocks to 513.2 million.

Inventories of refined products were also up, despite the start of the peak-demand summer season.

“Crude oil prices are testing lows last seen in (the fourth quarter of) 2016,” analysts at US bank Jefferies wrote, pointing to the United States as the main pressure on prices.

Slowdown

US refined oil product inventories are now back above 2016 levels and well above their five-year range, reflecting an unexpected slowdown in US demand for gasoline and distillate fuels, Jefferies said.

Asian markets are also oversupplied, with traders putting excess crude into floating storage, an indicator of a glut.

The Brent forward curve shows a clear “contango” shape, with oil for use now at deep discounts to future prices. This typically indicates a well-supplied market.

Brent for January 2018 is worth around $1.50 a barrel more than Brent for August 2017, making it profitable for some traders to put oil into tankers and wait for a later sale.

Thomson Reuters Eikon shipping figures show at least 25 supertankers sitting in the Strait of Malacca and the Singapore Strait, holding unsold fuel.

Those are similar amounts to May and April, indicating that even in Asia, with its strong demand growth, traders are struggling to clear inventories.

And more production is coming. Libya’s 270,000-bpd Sharara oilfield has reopened after a workers’ protest and should return to normal production within three days, the National Oil Corp said on Friday.

Meanwhile, Palladium leapt more than 7 percent on Friday to its highest in over 16 years, as a surge in speculative demand forced industrial users to close out short positions, traders said, pushing the metal through long-term chart resistance.

The backwardation in the market — a formation in the forward curve in which the price of metal for future delivery is below the spot price, can suggest a near-term shortage of metal and has recently steepened, prompting a wave of buying.

Trendline

That pushed prices through the 16-year declining trendline at $868 an ounce, triggering a further surge that took them to their highest since early 2001 at $914.70 an ounce. Spot palladium was at $884.60 an ounce at 1345 GMT, up 3.7 percent.

“The background for palladium is for good industrial demand and likely a significant market deficit this year, and on top of course you’ve got this speculative squeeze,” Mitsubishi analyst Jonathan Butler said.

“The backwardation has got a lot steeper in the last day.

Metal for immediate delivery is very tight, and that is being reflected in those forward rates moving into an even steeper backwardation.” Traders reported a reluctance to lend the metal, suggesting tightness in near-term supply. Chart patterns indicate that the metal is vulnerable to a sell-off from these elevated levels, however, technical analysts said.

Gold fell for a third day, meanwhile, after British elections failed to deliver a clear majority for Prime Minister Theresa May, knocking the pound sharply lower and helping lift the dollar index to its highest since late May.

Spot gold was down 1 percent at $1,265.91 an ounce, while U.S. gold futures for August delivery were $10.90 an ounce lower at $1,268.60.

Sterling-denominated gold rose to a near two-month high of 1,007.98 pounds an ounce as the British currency fell as much as 2.5 percent. Along with a drop in the euro, that helped lift the dollar half a percent versus a currency basket.

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