Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Energy & Precious Metals - Weekly Review and Calendar Ahead

Commodities Jan 19, 2020 08:37AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Barani Krishnan - It finally got done. And we’re back to arguing what good it can do, now that it’s done.

I’m talking, of course, about the $200 billion U.S.-China deal signed at the White House this week, the so-called phase one agreement that will attempt to end the mother-of-all trade wars - even as there are calls for a phase two to start from where the phase one will end.

The two-year long interim deal - which, interestingly, is proportionate to the duration of the trade war between the Trump and Xi governments - has been turned inside out since it was inked Wednesday. And the first holes have been poked by reviewers at China’s commitment to buy $52 billion of U.S. crude oil and other energy products. Negative speculation over the deal was enough to send West Texas Intermediate, the benchmark for U.S. crude, down almost 1% on the week as it settled Friday at $58.54 per barrel. Brent, the global benchmark for crude, rose a modest 0.2% to settle at $64.85.

Further weighing on crude prices Friday was the weekly oil rig count published by industry firm Baker Hughes, which showed drillers adding 14 rigs to bring to 673 the total number across U.S. oil fields. A higher rig count, in the simplest sense, means higher crude production. Over the past two weeks, the rig count had fallen, extending last year’s drop of 208.

On the precious metals front, gold benefited from the negative media swirl over the phase one as the safe-haven continued to seek a hedge to potential troubles in the deal. But more than gold, it was palladium that rocked precious metals this week as the auto-catalyst shot to a new all-time high above $2,500 an ounce - up 28% within just two weeks after a 55% gain throughout 2019. More in the precious metals review section below.

Energy Review

From the energy aspect of the phase one alone, there were as many arguments on whether the audacious demands made by Trump on China were plausible, as there were concerns about the impact that Beijing’s assumed compliance will have on global commerce.

With both sides retaining much of the tariffs imposed on each other over the past two years - Trump for leverage against Beijing and Xi to ensure no loss of “face” for the Chinese - analysts were unsure of how the step-up in trade could occur.

“The consensus expectation is that if the deal is respected, China’s crude oil imports from the US will rise to at least 500,000 barrels per day from zero in last October,” said Olivier Jakob, founder of Petromatrix, an oil risk consultancy in Zug, Switzerland. “However, at this stage, it is difficult to see how China would do this with its current import tariffs; something must change there,” Jakob added.

He also said that if China were to increase its U.S. energy consumption to fulfill the deal, the United States would account for almost all of Chinese oil import growth in the next 12 months, “to the detriment of OPEC+ and the North Sea”. OPEC+ groups the Saudi-led Organization of the Petroleum Exporting Countries with non-OPEC members like Russia. The North Sea is the production hub for Brent.

Jakob’s perspective was shared by Refinitiv oil columnist Clyde Russell, who went a step further in questioning the impact that such Chinese compliance would have on the global oil trade.

“The problem for energy markets isn't whether China can actually buy the amount of crude oil, coal and liquefied natural gas it has apparently committed to under the trade truce with the United States,” Russell wrote in a Jan. 16 commentary. “The real issue is what happens if Beijing tries and succeeds?”

Russell explained that as part of the agreement, China agreed to buy at least $52.4 billion in additional energy purchases over the next two years, from a baseline of $9.1 billion in 2017. That will be broken into $18.5 billion in 2020 and $33.9 billion in 2021.

The best-ever month for China's imports from the United States was June 2018, when 14 million barrels arrived, according to Refinitiv data.

If that record performance is annualized, Russell said it would mean that China would buy about 170 million barrels, worth some $9.82 billion based on the Jan. 16 price of $57.81 for a barrel for WTI.

“For China to reach the 2020 target of $27.6 billion in energy imports from the United States, it would take more than a doubling of the record months achieved in the past,” Russell noted. “It also remains to be seen how China's existing suppliers would react to losing market share in the world's top crude importer: Would they simply roll over, or, more likely, try to protect their market share while going after U.S. customers outside of China?”

China’s biggest oil suppliers have historically been from the Middle East, led by Saudi Arabia, which is the third largest crude producer after the United States and Russia.

Energy aside, there were also questions about the agricultural portion of the deal, worth $32 billion. Netherlands-based Rabobank estimated that Chinese imports of U.S. soybeans and corn — often the only farm products talked about by the media during the trade war — would account for just about half or more of the deal.

China would have to buy a lot more of food and farm products -- including meat, seafood, dairy and cotton — to honor its commitment to the agricultural portion, said Rabobank. “To facilitate the high procurement, most of the existing retaliatory tariffs are expected to be removed soon,” it said. That adds to the growing belief that the tariffs, which became the catalyst to the trade war and which remain even after the signing of the phase one, could drown the deal unless the two sides have the will to move on.

** After markets closed Friday, reports emerged Saturday that Libya’s National Oil Corp has declared force majeure on oil exports from five ports — Brega, Zueitina, Ras Lanuf, Hariga and Sidra — under the control of renegade general Khalifa Hafta. A military strongman trying to seize political power in Libya, Haftar, halted oil shipments at the five ports to gain leverage ahead of peace talks in Berlin on Sunday. Analysts estimated that least 800,000 barrels per day of crude supplies out of Libya had been disrupted. The oil-rich North African state had steadily pumped 1.3 million bpd before that.’s estimate is that Brent could trade at a premium of up to $2 per barrel or more when Asian and European markets reopen Monday, while U.S. markets remained closed for the Martin Luther King holiday.

Energy Calendar Ahead

Monday, Jan 20

Genscape Cushing crude stockpile estimates (private data)

Wednesday, Jan 22

American Petroleum Institute weekly report on oil stockpiles.

Thursday, Jan 23

EIA weekly report on oil stockpiles

EIA weekly natural gas report

Friday, Jan 24

Baker Hughes weekly rig count.

Precious Metals Review

It seems difficult to keep gold more than a day with speculation going back and forth of the potential success of the U.S.-China deal. More interestingly, it’s virtually impossible to push down palladium, which hit record highs again Friday on supply concerns.

Gold futures for February delivery on New York’s COMEX settled up $3.10, or 0.6%, at $1,560.30 per ounce. For the week, it was flat.

Spot gold, which tracks live trades in bullion, was up $7.91, or 0.5%, at $1,560.45. For the week, it was down 0.3%.

Gold prices had initially fallen after China agreed to purchase at least $200 billion worth of US goods over the next two years under the Phase One deal signed on Wednesday.

But as the days progressed, analysts have questioned the potential success of the deal, and the chances of the trade war recurring with both nations keeping much of the tariffs they had imposed on each other prior to the agreement.

“Following a noteworthy positioning squeeze, the yellow metal is creeping higher once again,” TD Securities said in a note. “Along with positive expectations for growth comes the potential for inflation to creep higher, and without a commensurate Fed response, this would translate into lower real rates.”

The Federal Reserve cut rates by a quarter percent point for three months back-to-back in 2019, before bringing that easing cycle to a halt in December. With U.S. economic data mostly upbeat now, analysts do not expect the central bank to embark on a new round of cuts unless the trade war recurs.

Spot palladium jumped a whopping $177, or 7.7%, on Friday to $2,490 per ounce. It hit an all-time high of $2,539.31 earlier and closed the week up 17%.

Palladium futures were up up $77.45, or 3.6%, at $2,255.25, after touching a record high of $2,298.35. It rose 8.5% for the week.

Palladium was the best-performing commodity in 2019, gaining 55%. It is already up 28% year-to-date.

Energy & Precious Metals - Weekly Review and Calendar Ahead

Related Articles

Norway pledges 1 billion euros to support Ukraine
Norway pledges 1 billion euros to support Ukraine By Reuters - Jul 01, 2022 4

(Reuters) - Norway on Friday pledged 1 billion euros ($1.04 billion) to help Ukraine defend itself, support people in need and for reconstruction in the wake of Russia's invasion....

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Jon Benton
Jon Benton Jan 19, 2020 2:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lithuim about too take off !!!!
Barani Krishnan
Barani Krishnan Jan 19, 2020 2:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yes, Jon, that's one worth watching.
PK AG Jan 19, 2020 1:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Oil crash
Barani Krishnan
Barani Krishnan Jan 19, 2020 1:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Eventually, yes.
AL DE Jan 19, 2020 1:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
where is  oil going?
Barani Krishnan
Barani Krishnan Jan 19, 2020 1:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Up in the immediate term.
Mikko Mäkelä
Mikko Mäkelä Jan 19, 2020 1:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
still more room for palladium? 2500 was conserned as roof price
Barani Krishnan
Barani Krishnan Jan 19, 2020 1:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
$3,000 is the target now.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email