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

Energy & Precious Metals - Weekly Review and Calendar Ahead

Commodities Apr 26, 2020 07:10AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.

By Barani Krishnan

Investing.com - Oil’s Black Monday feels like so long ago. Since WTI’s expiring contract, May, fell into the abyss of negative pricing - hitting minus $40 before settling at minus $37 - it has come bouncing right back. By Friday’s close, U.S. crude was just below $17 - in the positive but still miles away from the $61 level where it began the year.

At its current trajectory, WTI is expected to attempt a return to $20 pricing in the coming week. It might just make it. But whether it gets to stay there will be decided by another phenomenon that’s unfolding now in U.S. crude - one that’s likely to set us up for another round of sub-zero prices.

WTI’s front month, June, finished the week at a contango, or discount, of more than $4 per barrel to July. Open interest in the spot contract was also about 25,000 lots less to the nearby month.

This signaled investors’ preference to be in a “safer” contract that pledges to deliver oil later rather than sooner in a glutted market.

Just as important, it was a sign that June WTI could also be up for a squeeze like May, when its expiry comes up in three weeks.  

“The fundamentals have not changed since Monday,” for WTI, said Igor Windisch, analyst at the IBW Oil Brief.

“There is no bullish economic news on consumption-demand to come anytime soon. OPEC+ supply cuts will not come in for another 7 days. And stocks continue to fill up. There’s still an imbalance in the fundamentals of roughly 5 million barrels per day and until that persists, I do not see the price of crude going up substantially and with sustainability, i.e. a trend reversal,” Windisch added.

For emphasis, he cites a Bloomberg story from Thursday about how some oil traders were taking advantage of the dire shortage now in tanker space by sailing longer routes than usual and at slower speeds.

“Charterers are asking for slower speed voyages, ~11.5 knots instead of 13,” Windisch wrote. “That takes even more space out of the tanker market ... supporting super high freight rates too. And that makes the contango even more steep, because it costs more to store...etc...a nice virtuous circle for the ones who are in it.”

Virtuous or not, what determines WTI’s fate now is storage. According to the U.S. Energy Information Administration, at the end of last week, there was only about 16 million barrels of space left at the Cushing, Oklahoma hub serves as delivery point for expiring WTI contracts. 

Total builds in U.S. crude have, in fact, averaged 16 million barrels per week over the past four weeks. Of course, not all that oil will come to Cushing. But the hub itself saw a 5-million build last week. If that rate of fill is maintained, then Cushing could max out in the 3 weeks. Anyway, even this math may be academic as the EIA indicates that much of the space at Cushing may have already been leased out, leaving an even smaller probability of existing space there.

Aware that investors were already bailing out of June WTI - and by extension, June Brent - various brokerages, including AMP Global Clearing, TradeStation Securities Inc, INTL FCStone, Marex, have imposed restrictions on customers from taking new positions in both.  For orders that still came in, margin requirements were raised.

“When you think about some of these firms, their customers were probably not trading for size,” said Bob Yawger, director of the futures division for Mizuho. “But when you take on an aggregate amount of these folks, it adds up and you definitely lose some liquidity in the front.”

Bottomline: The trust deficit in WTI’s front-month is growing, with more than three weeks to its expiry. What oil needs are cuts faster than OPEC promises. As of now, time isn’t on crude’s side.

In gold’s case, the race is still on for a test of $1,800, though volatility could keep it at the lower end of $1,700.

Since the coronavirus crisis struck, gold has been joined at the hip with U.S. equities. And what’s good for Wall Street these days is good for the yellow metal too, as a tumble in stocks would likely spark a liquidation in gold, whose unique position as a store of value enables easy redemption to cover losses anywhere.

Energy Review

Oil prices remained higher for a fourth straight day on Friday, while closing the week down after Monday’s historic negative pricing. 

June WTI settled up 44 cents, or nearly 3%, at $16.94 per barrel.. For the week, it was down 7%.

Brent, the London-traded global benchmark for crude, closed up 11 cents, or 0.5%, at $21.44. It was down 24% on the week. 

Despite the four-day rally, open interest in WTI’s front-month trailed that of the nearby July contract - an ominous sign for anyone playing long on the front-price of U.S. crude.

“More brokers, and not just the discount brokers, are limiting access to the first contract of oil futures,” Olivier Jakob, founder of Zug, Switzerland-based oil-risk consultancy PetroMatrix, said.

“If open interest continues to move early out of the first month, it could be increasingly difficult for the roll of indices still having holdings of front-month futures, but as well for the delta-hedging of options,” Jakob added. “Margin requirements are also increasing to take into account the volatility seen this week.”

Energy Calendar Ahead

Monday, April 27

Private Genscape data on Cushing oil inventory estimates

Tuesday, April 28

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, April 29

EIA weekly report on oil stockpiles

Thursday, April 30

EIA weekly natural gas report

Friday, May 1

Baker Hughes weekly rig count.

Precious Metals Review

Gold’s delicate dance in the $1,700 zone continued Friday as gains on Wall Street limited the yellow metal’s slide against the dollar’s rally to a near three-week high.

Gold futures for June delivery on New York’s COMEX settled almost flat at $1,745.65 per ounce. For the week, though, it was up 2.3% after Wednesday’s strong move into $1,700 territory.

Spot gold, which tracks live trades in bullion, last traded at $1,728.86, down $2.28, or 0.1%, at $1,728.86. For the week, June gold was up about $45, or 2.7%.

The dollar index, which pits the dollar against a basket of six currencies, was flat at 100.44 after hitting an 18-day high of 100.98 earlier.

Wall Street’s Dow headed for a gain of 2.5% in Friday’s trade boosted by optimism ahead of the reopening of business in several U.S. states after a more than shutdown over the coronavirus. 

Despite the relative stability in U.S. stocks, the safe-haven crowd behind gold has a bigger worry for the coming week: India’s continued lockdown amid the Covid-19 pandemic and how that would affect demand from bullion’s biggest supporter.

“Gold is going to have to face a little adversity over the next couple of trading days with the U.S. dollar making fresh new weekly highs overnight and with the world’s largest import country of gold on nation-wide lockdown,” said Nicholas DeGeorge, senior market strategist for precious metals at RJO Futures in Chicago.

Gold is a sacred metal in India, whose ornamental value is second to none to the nation’s 1.4 billion people. Statues of Hindu deities in Indian temples are typically adorned with the yellow metal, which is also a staple expense at weddings. India’s central bank holds most of its reserves in gold and Indians generally wear gold jewelry in daily life and at social occasions, resulting in an annual import of 800 to 900 tonnes. 

India’s second largest buying day of the year for gold comes up this Sunday and its lockdown “will surely impact physical demand” for the metal, said DeGeorge.

Energy & Precious Metals - Weekly Review and Calendar Ahead
 

Related Articles

Gold Treads Water at Mid-$1,800 as All Eyes on Fed 
Gold Treads Water at Mid-$1,800 as All Eyes on Fed  By Investing.com - Jun 24, 2022 4

By Barani Krishnan Investing.com -- Bulls in gold logged a second weekly loss as the yellow metal treaded water at mid-$1,800 levels amid a keen watch on the Federal Reserve’s next...

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 Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
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 (7)
Neeraj Jain
Neeraj Jain Apr 26, 2020 4:29PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
cannot buy till june contracy in india
shaikh uzaif
shaikh uzaif Apr 26, 2020 2:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
buy oil 17$ around and my tp 24$or more this week
Neeraj Jain
Neeraj Jain Apr 26, 2020 2:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
brokers not permitting in india
Barani Krishnan
Barani Krishnan Apr 26, 2020 11:43AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hello all, while we didn't run a separate calendar for precious metals, this week we have meetings for all the central banks that matter: Fed, ECB and BoJ. Also we have Q1 US GDP (will be interesting to see what the last positive stretch in U.S. growth was) and -- again -- Thursday's jobless claims. if we continue to flatten the curve on job losses, gold could see mixed signals from an equally strong Dow/USD; oil will, of course, benefit from improving labor data -- though the drain in June WTI liquidity/OI, and persistent storage squeeze problems for oil, remain a problem
Phil Kimmel
Phil Kimmel Apr 26, 2020 11:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
In a little more than 30 years gold has gone from US$ 800 to US$ 1700. That's a pretty poor investment.
Barani Krishnan
Barani Krishnan Apr 26, 2020 11:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If you consider the inflation we've had in that time, yes: It's a pretty poor investment. But then again, this is like insurance to the average investor. Think Geico and State Farm. You'd go to one that will cover you, yet you don't want ti break the bank to have it. In a very simplistic way, it explains the rationale behind gold: It will probably never get TOO expensive for the average investor to own. And because it's so liquid, people tend to use it like an ATM when in any cash crunch, which explains why it's tracking the Dow so closely now.
Jermaine .A
Jermaine .A Apr 26, 2020 11:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lol I'm not even a gold bug but you've picked two points for a distorted view. You could've also said buying gold from the beginning of this millennium (sub $300) was a very good investment to make. Why compare to a previous high? If you bought before the 1971 event then it blows out any major US index market investment by far.
Barani Krishnan
Barani Krishnan Apr 26, 2020 11:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Jermaine .A  Valid point, Jermaine :)
Silver News Now
Silver News Now Apr 26, 2020 8:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Also long gold and silver
Đorđe Merdžijević
Đorđe Merdžijević Apr 26, 2020 8:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What do you think for oil? From wich point will start?
Barani Krishnan
Barani Krishnan Apr 26, 2020 8:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Đorđe Merdžijević  Around $17, before sliding to $16 or $15 midweek, if my hunch is right. The outflows in June OI will spook people over time.
Chuck Deezel
AG_ToTheMoon Apr 26, 2020 8:50AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Long JNUG and USLV
Abdurahman Mohamed Usman
Abdurahman Mohamed Usman Apr 26, 2020 8:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how I start for this
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
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 Investing.com'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
or
Sign up with Email