Investing.com– Gold prices fell in Asian trade on Thursday and were close to breaking below key levels as waning safe haven demand and the prospect of higher-for-longer U.S. interest rates battered the yellow metal.

Bullion prices were nursing a sharp drop from record highs over the past week, as a potential conflict between Iran and Israel did not escalate as markets were fearing. This largely dented safe haven demand for the yellow metal.

Waning safe haven demand left gold vulnerable to headwinds from U.S. rates, given that higher-for-longer rates push up the opportunity cost of investing in bullion.

fell 0.1% to $2,313.62 an ounce, while expiring in June fell 0.6% to $2,325.05 an ounce by 00:26 ET (04:26 GMT). 

Strength in the – which remained close to recent five-month peaks, also pressured metal prices.

Gold eyes $2,300 support, more rate cues awaited 

Spot prices were now close to breaking below the $2,300 an ounce support level, which could herald more near-term losses for the yellow metal.

But gold’s next leg of movement is expected to be driven largely by more upcoming cues on the U.S. economy and interest rates.

First-quarter U.S. data due later on Thursday is expected to show whether the world’s largest economy remained resilient in the beginning of 2024. 

data- which is the Federal Reserve’s preferred inflation gauge- is likely to have a bigger impact on gold, given that it ties directly into the central bank’s outlook on interest rates.

Hotter-than-expected U.S. inflation readings and hawkish Fed signals saw traders largely price out expectations for a June rate cut- a scenario that presents more near-term pressure for gold prices.

Other precious metals also retreated on Thursday after tumbling from recent peaks over the past week. fell 0.3% to $910.30 an ounce, while fell 1% to $27.078 an ounce.

Copper prices cool further from 2-year highs

Among industrial metals, copper prices fell further from recent two-year highs as weak economic readings and fears of high interest rates somewhat offset optimism over tighter markets. 

on the London Metal Exchange fell 0.2%  to $9,773.0 a ton, while fell 0.1% to $4.4510 a pound. Both contracts were below two-year highs hit earlier in April, after stricter western sanctions on Russian metal exports pointed to tighter markets. 

But this optimism was dulled by top copper producer Chile signaling that state-owned copper miner Coldeco will increase output in 2024.

Concerns over steady demand also weighed after U.S. purchasing managers index data read weaker than expected for April, with the back in contraction territory. 

By Alex Lawler and Deep Kaushik Vakil

LONDON (Reuters) -Oil steadied on Thursday after settling lower the previous day as signs of retreating fuel demand in the U.S., the world’s biggest oil user, contended with widening conflict risks in the Middle East.

This week’s supply report from the U.S. Energy Information Administration (EIA) on Wednesday showed gasoline stockpiles fell less than forecast while distillate stockpiles rose against expectations of a decline, reflecting signs of slowing demand. [EIA/S]

“It does not exactly give a healthy state of domestic demand in the U.S.,” said John Evans of oil broker PVM, who added that U.S. economic data out later in the day would be important for sentiment. “Oil prices today will not be in the hands of the oil market,” he said.

futures rose 18 cents, or 0.2%, to $88.20 a barrel by 1135 GMT while U.S. West Texas Intermediate crude futures were up 17 cents, or 0.2%, at $82.98.

inventories unexpectedly fell sharply last week, the EIA report also showed, as exports jumped.

The concern about U.S. fuel demand arises amid signs of cooling U.S. business activity in April and as stronger-than-expected inflation and employment data means the Federal Reserve is seen as more likely to delay expected interest rate cuts.

U.S. economic data out later on Thursday includes first-quarter economic growth. Gross domestic product (GDP) likely increased at a 2.4% annualised rate, according to a Reuters survey of economists.

“The current weakness in benchmark prices, after testing above $90 levels, is due to market sentiment refocusing on global economic headwinds over geopolitical tensions,” said Emril Jamil, senior oil analyst at LSEG Oil Research.

Fighting in the Gaza Strip between Israel and Hamas is expected to expand as Israel may start an assault on Rafah, in the enclave’s south, which may increase the risk of a wider war that could potentially disrupt oil supplies.

Still, oil supply has not been affected as yet and there have been no other signs of direct conflict between Israel and Hamas-backer Iran, a major oil producer, since last week.

By Sabrina Valle

HOUSTON (Reuters) – Technology advances are making it possible for U.S. shale oil and gas companies to reverse years of productivity declines, but the related requirement to frontload costs by drilling many more wells is deterring some companies from doing so.

While overall output is at record levels, the amount of oil recovered per foot drilled in the Permian Basin of Texas, the main U.S. shale formation, fell 15% from 2020 to 2023, putting it on par with a decade ago, according to energy researcher Enverus.

That is because fracking, the extraction method that emerged in the mid-2000s, has become less efficient there. In the technique, water, sand and chemicals are injected at high pressure underground to release the trapped resources.

Two decades of drilling wells relatively close together, resulting in hundreds of thousands of wells, have interfered with underground pressure and made getting oil out of the ground more difficult.

“Wells are getting worse and that is going to continue,” said Dane Gregoris, managing director at Enverus Intelligence Research firm.

But new oilfield innovations, which began being implemented more widely last year, have made it possible for fracking to be faster, less expensive and higher yielding.

The advances in the past few years include the ability to double the length of lateral wells to three miles and equipment that can simultaneously frack two or three wells. Electric pumps can replace high-cost, high maintenance diesel equipment.

“Companies now can complete (frack) wells faster and cheaper,” said Betty Jiang, an oil analyst with Barclays.

A drawback to the new simultaneous fracking technology, also called simul-frac, is that companies need to have lots of wells drilled and ready to move to the fracking phase in unison before they can proceed. Pumps inject fluids into and get oil and gas out of two or three wells at the same time, instead of just one.

Because these act as an interconnected system, wells cannot be added piecemeal. But companies eager to cut costs have not deployed enough drill rigs to capitalize fully on the potential of the innovations.

“Instead of drilling the wells and getting production in a few months, you have got to drill eight wells, or 10 wells,” said Mike Oestmann, CEO of Tall City Exploration.

“That’s $100 million in the ground before you see any revenue,” he said. “For small companies like Tall City, that’s a big challenge.”

The number of active drilling rigs in the U.S. this month fell nearly 18% from a year ago.

Simul-fracking can also lower well costs by between $200,000-$400,000, or 5%-10% apiece, said Thomas Jacob, senior vice president of supply chain at researcher Rystad Energy estimates.

NEW TECH SUPPORTS RECORD PRODUCTION

Oil analysts anticipate use of the new technology will accelerate. “We saw a trend of companies shifting to simul-fracs in the second half last year, and that is only going to continue,” said Saeed Ali Muneeb at energy analysis firm Kayrros. 

Longer wells and advancements in fracking techniques are more than offsetting declining productivity and limited rig count, helping the U.S. reach record oil production volumes.

The top U.S. shale-producing regions are forecast next month to hit the highest output in five months with new-well production up 28% from a year ago, according to the U.S. Energy Information Administration.

“Companies are making a fine-tuning and getting better and better in fracking,” said Oestmann. “Without them, production would fall.”

Innovations are going to gain scale once top producers like Exxon Mobil Corp (NYSE:) and Chevron Corp (NYSE:) adopt them more broadly, shale experts said.

Mid-sized shale firms like Pioneer Natural Resources (NYSE:) that can afford the costs were first to embrace the new methods. The positive results make them more attractive to big firms like Exxon, which is awaiting regulatory approval to buy Pioneer.

But the biggest shale producers have committed to using oil revenue to finance shareholder returns rather than drilling expansion. Two of the biggest shale oil operators, Exxon and Chevron, have missed targets for Permian production in the past years.

Exxon said its own new fracking technology will allow it to extract an extra 700,000 barrels of oil equivalent per day (boepd) from Pioneer’s assets by 2027, tripling output there to 2 million boepd.

Chevron is increasing use of simul-fracs and says the technique will help it increase Permian production by 10% this year to 900,000 boepd. It also completed a triple-frac pilot and anticipates using it more widely, a spokesperson said.