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Energy & Precious Metals - Weekly Review and Calendar Ahead

CommoditiesDec 13, 2020 07:36AM ET
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By Barani Krishnan

Investing.com --The United States had its worst week for COVID-19 cases, deaths and hospitalizations. The oil market saw a total build of 25 million barrels in crude, gasoline and distillate stockpiles. Yet, oil bulls chased crude prices to 9-month highs, on the notion that vaccines will sort everything out.

In the distorted lens of oil longs, the “now” in the pandemic is lost in the la-land land of what the “future” could be for human health, travel and energy consumption.

The most ardent believers of higher oil prices are betting that people everywhere will soon be able to jump on a plane or any form of mass transit or travel to go anywhere, anytime, as millions of doses of coronavirus vaccines reach the world over the course of the next few weeks, after being approved by relevant health authorities.

The truth, of course, is more complicated than that. 

As much as Pfizer-BioNTech, Moderna (NASDAQ:MRNA) and other vaccine makers are certain of delivering a knockout blow to the COVID-19, an immunization of this scale hasn’t been undertaken before — not in the United States, not in Canada, not in Britain, or not anywhere on the planet.  

Frontline workers inside New York hospitals are currently experimenting with best practices, from delivery and circulation to timing and storage. 

Some states like Arizona are simulating what the drive-through process will look like when patients are able to receive the vaccine. 

For those on the frontlines, every day of rehearsal counts, because when “V-Day” comes, mistakes will be costly.

Refrigeration of the doses, particularly, is vital. The units used for storage need to be some 80 to 90 degrees Fahrenheit below zero. Hospitals are now conducting eleventh-hour checks to make sure their freezers are in working order.

“We get it here in the pharmacy, we have to empty the box within 90 seconds and open the freezer,” said Vivian Leonard, director of pharmacy for Mount Sinai Health System. “If something goes wrong, it’s not an easy replace. Other times we’ve had freezers or refrigerators that don’t work, we can replace the drug — in this case, we can’t.”

In the meantime, Covid-19 statistics are reaching super-alarming levels. In the United States, case counts have reached 16 million — up from 15 million less than a week back — with almost 300,000 people now dead. 

Health authorities warn that hospital systems are at risk of being overrun again, just like at the height of the pandemic in the spring. Some mortuaries are overfilled, like in April, and refrigerated trucks have been brought in to store bodies. Globally, there are more than 71 million cases and 1.6 million deaths.

But none of these intricacies seem to matter to the hedge funds and algorithms in oil that have been incessantly pushing prices higher the past six weeks.

“The bullish tone is likely to continue amid hopes the pandemic can be brought under control with vaccines next year," Kazuhiko Saito, chief analyst at Fujitomi Co, said in his summary 

Still, he adds: "The recent rally looks to be overdone from a fundamental point of view, given rising oil output in Libya and the United States with weaker fuel demand across the globe." 

Most jarring was the most recent week’s jump of as much as 1.5% despite the U.S. government reporting monstrous inventory builds. 

Domestic  crude stockpiles rose by 15.2 million barrels for the week ended Dec. 4, the Energy Information Administration said, versus analysts' expectations for a 1.42 million-barrel drawdown instead.  

Distillate stockpiles, which include diesel and heating oil, rose by 5.2 million barrels during the week ended Dec. 4, against expectations for a 1.41 million barrel increase, the agency’s data showed.

U.S. gasoline inventories rose by 4.22 million barrels last week the EIA said, compared with expectations for a 2.27 million-barrel build.

But oil’s most optimistic investors swept aside the bearish EIA report, barely allowing WTI prices to fall in Wednesday’s trade. In doing so, they gave little or no consideration to whether such inventory spikes will become more common during the fall-to-winter season when demand for oil is typically lower — what not with the lingering impact of the Covid-19 adding to the slack in fuel consumption now.

“The  U.S. inventory data showed a 25 million total build in stocks (but) was ignored,” Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina, noted in his Thursday commentary on oil, a day after the EIA report. 

On the contrary, the inventory spike appeared to have “given additional hope to the bulls and sent the shorts even more to the sidelines,” said Shelton, an oil bull himself, who seemed stunned by the market’s strong upward bias.

Not all are convinced that oil prices will continue having a V-shaped recovery in the coming year, pointing to ramping Libyan production and a quick, potential return of Iranian oil once President-Elect Joe Biden eliminates sanctions on Tehran imposed by his predecessor Donald Trump.

Sensing the volatility ahead, Moody’s forecast a lower range of between $40 and $45 for Brent in 2001. 

“Modest improvement in 2021 oil prices will not lead producers to boost capital investment, while fuel demand will rise but not to pre-downturn levels,” the rating agency said.

Investors in gold, meanwhile, had a rollercoaster of a week, eking out a weekly gain, as talks in the U.S. Congress for a COVID-19 fiscal stimulus package hung in the balance.

In Friday’s negotiations in Congress, Republicans in the Senate, led by Majority Leader Mitch McConnell and aligned to outgoing president Trump, continued to frustrate attempts by Democrats in the House of Representatives to add state and local aid to the package. 

On their part, the Democrats, led by House Speaker Nancy Pelosi and backing President-Elect Biden, were against Republican efforts to add liability protections for institutions under the pandemic.

“McConnell is not budging on liability protections and remains resistant on providing aid to state and local governments,” said Ed Moya, analyst at New York’s OANDA. “This week was supposed to deliver a breakthrough in negotiations and not have talks get pushed into next week.”

The coming week could remain edgy for gold, though Moya said a plethora of risk events could lend support to the yellow metal.

Energy Review 

New York-traded West Texas Intermediate, the leading indicator for U.S. crude, last traded at $46.55 per barrel, after officially settling Friday’s session down 21 cents, or 0.5%, at $46.57. 

For the week, WTI rose 0.7%. On Thursday, it hit a nine-month high of $47.73, a dramatic reversal from minus $40 levels hit in April, with the advent of the Covid-19. 

London-traded Brent, the global benchmark for crude, last traded at $49.98 per barrel after officially finishing Friday’s trade down 28 cents, or 0.6%, at $49.97. 

For the week, Brent rose 1.5%. On Thursday, the U.K. crude grade hit a March high of $51.05 on Thursday, crossing the $50 mark the first time since the pandemic-induced market crash that took Brent below $15 per barrel in  April.

Oil prices have been on a tear over the past six weeks, with the U.S. crude benchmark gaining almost $11 or 31% in that span while its U.K. peer rose nearly $13 or 35%.

Energy Calendar Ahead

Monday, Dec 14

Private Cushing stockpile estimates

Tuesday, Dec 15

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Dec 16

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

Thursday, Dec 17

EIA weekly report on natural gas storage

Friday, Dec 18

Baker Hughes weekly survey on U.S. oil rigs

Precious Metals Review

Gold for February delivery on New York’s Comex last traded at $1,843.70 per ounce after officially settling Friday’s trade up $6.20, or 0.3%, at $1,843.60 an ounce. 

For the week, February gold rose 0.2%, after rising $33 on Monday to a three-week high of nearly $1,880 before tumbling almost $40 in the next session.

The spot price of gold, which algorithms and hedge funds use to decide the direction in futures, settled with a smaller gain than the February gold contract. Spot gold last traded at $1,839.60 per ounce after officially settling Friday’s trade up $3.72, or 0.2%, at $1,839.03.

Gold turned volatile as agreement for a COVID-19 economic stimulus remained out of reach. 

Congress originally passed in March the Coronavirus Aid, Relief and Economic Security (CARES) Act, dispensing roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid for qualifying citizens and residents.

In the past few months, however, Democrats in Congress have been locked in a bitter debate with Republicans in the Senate on a successive relief plan to the CARES Act. The dispute has basically been over the size of the next stimulus as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid. 

The stalemate appeared broken last week after a bipartisan group of Democrats and Republicans proposed a $908 billion relief bill, which led the two sides to resume negotiations.

Stimulus and other monetary expansion exercises typically fuel inflation, boosting gold, which serves as a hedge.

 

Energy & Precious Metals - Weekly Review and Calendar Ahead
 

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Comments (8)
cran Vivid
cran Vivid Dec 13, 2020 2:02PM ET
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Its all about sentiment injected by money managers...fundamentals, supply/demand can be ingorned just based on hopium. As they say a P/E ratio of 20-30 is rationale. If not hopuim/greed, what else can explain Tesla’s P/E ratio of over 1100!? Lets see how far we can push the extreme.
George Undertaker
Thinktwice Dec 13, 2020 12:53PM ET
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If people are allowed to move, (fly, drive) they will, and most propably more than ever. Vaccin roll-out wil provide this. Ardent believers are buying stocks to unseen levels, with no fundamentals. UDD is weakening so $ 50 is not exceptional. Not at all.
Christopher Jenkins
Christopher Jenkins Dec 13, 2020 11:09AM ET
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You’re just now discovering that the vast majority of investors focus on expectations for the “future” rather than the “now”?
Barani Krishnan
Barani Krishnan Dec 13, 2020 11:09AM ET
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No, Mr. Jenkins, I haven't just made any discovery as you're implying. Rather, what surprises me is the delusion of oil longs in the face of a combined 25 mln barrel build in crude and products. Well, the coming weeks' data will show if that was an aberration, or start of some sort of trend. Cheers.
Daniel Forthun
Daniel Forthun Dec 13, 2020 10:34AM ET
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Buffet and everyone thinks a market crash just after retail sectors pass for xmas! Think gold only safe place!
Barani Krishnan
Barani Krishnan Dec 13, 2020 10:34AM ET
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I guess that is what will be left shining when the dust settles, Daniel.
Cameroonian Genius
Cameroonian Genius Dec 13, 2020 8:58AM ET
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thoughts on industrial metals?
Barani Krishnan
Barani Krishnan Dec 13, 2020 8:58AM ET
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Hello there, we will visit industrial metals later in the week. Thanks.
Cameroonian Genius
Cameroonian Genius Dec 13, 2020 8:58AM ET
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Barani Krishnan I'm looking forward to it
Raghu Raghavan
Aptosian Dec 13, 2020 8:58AM ET
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Seems like copper may outshine gold in 2021...I look forward to your reporting to understand better. Thx.
AST Thomas
AST Thomas Dec 13, 2020 8:41AM ET
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gold or crypto !
Barani Krishnan
Barani Krishnan Dec 13, 2020 8:41AM ET
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Good question. Gold for me :)
Scott Iadonisi
Scott Iadonisi Dec 13, 2020 8:41AM ET
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bitcoin
Cameroonian Genius
Cameroonian Genius Dec 13, 2020 8:41AM ET
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dogecoin?
DANIEL Newman
DANIEL Newman Dec 13, 2020 8:08AM ET
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Good lord the fact of lifting sanctions on Iran *****. Bidens economy will and is going to be a disaster.
Barani Krishnan
Barani Krishnan Dec 13, 2020 8:08AM ET
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The Iranians were complying with the Obama-era nuclear deal, until Trump came along.
Cameroonian Genius
Cameroonian Genius Dec 13, 2020 8:08AM ET
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but they weren't giving access to some military sites which were included in the deal though.
Cameroonian Genius
Cameroonian Genius Dec 13, 2020 8:08AM ET
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biden will be good for clean energy, cannabis, tech and China probably.
Barani Krishnan
Barani Krishnan Dec 13, 2020 8:08AM ET
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True on what will be a good run under Biden. I think you are biased on his China policy, probably from right-wing propaganda.
Cameroonian Genius
Cameroonian Genius Dec 13, 2020 8:08AM ET
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i don't think any of the western politicians will stand up to China regardless of their political leaning.
Manish Arora
Manish Arora Dec 13, 2020 8:07AM ET
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well written
Barani Krishnan
Barani Krishnan Dec 13, 2020 8:07AM ET
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Thanks much, Manish. Wishing you a great week ahead!
 
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