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Energy & Precious Metals - Weekly Review and Calendar Ahead

CommoditiesDec 20, 2020 06:58AM ET
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© Reuters.

By Barani Krishnan

Investing.com -- Patience was a quality greatly demanded from traders over the past week. And for the most part, those in commodities showed it as Congress continued its back-and-forth dance over Covid-19 relief. 

Gold traders held futures just $15 below Thursday’s high of nearly $1,902 an ounce. Given the five-month bottom below $1,770 hit by the yellow metal in November, it was indeed surprising to see such resilience.

The long side of the oil trade, meanwhile, pushed forth with its apparent obsession for $50 and beyond a barrel, despite eye-watering builds in both U.S. crude and fuel inventories of late. New York-traded crude futures surrounded no ground at all Friday, coming less than $1 to the $50 mark, despite a weak Wall Street most of the day.

It was really stocks traders who lost it. Shortly after Friday’s open, equity markets gave up coddling lawmakers' indecision on the stimulus, sending the Dow plummeting 270 points at one stage. All three of  Wall Street's key indexes settled the day in the red. But Dow futures and S&P 500 futures later returned to the positive, with Nasdaq futures not far behind - again on the belief that a deal will be done no later than Monday.

For the record, senior lawmakers resolved a major standoff late Saturday night on the Covid relief, after Democrats reached a compromise with an inane move by Pennsylvania’s Republican senator Patrick Toomey to rein in the lending powers of the Federal Reserve. But Wisconsin’s Republican representative Ron Johnson continued to hold out on $1200 checks for regular Americans.

Of course, there’s more at play on the markets than just a stimulus package for the coronavirus.

Infections, hospitalizations, and deaths are soaring to record levels in the U.S., which has failed to mount a coordinated effort to slow the spread of the virus.

That’s not at all. A new strain of the virus had been detected in the U.K. - reportedly 70% more transmissible than earlier versions - and was worrying enough for President Boris Johnson’s government to order fresh harsher lockdowns and virtually little or no celebration for Christmas.

Monday’s gold, oil and other markets will invariably react to this trifecta of worries - fiscal relief for the pandemic that has yet to reach millions of needy Amercians, fatalities spiking out of control and a more transmissible form of the virus that could only make things worse. 

The positive story, of course, will be the hundreds of millions of doses of vaccines being rolled out and how quickly those could help break back of the virus’ spread. A second vaccine was approved for distribution from Sunday, this one from Moderna after the previous week’s approval given to Pfizer-BioNTech. 

"Life will not get back to normal immediately," Simone Wildes, infectious disease doctor at South Shore Health, told ABC News. “But, in the coming months, "the vaccine will be a main part of getting us back to normalcy.”

In the meantime, almost 8 million people have fallen into poverty since the summer. Savings for many, especially the lowest earners, are either dwindling or gone. 

On the whole, it has been nine months since the Covid-19 began its assault on American livelihoods. Since then, financial desperation has steadily grown for jobless Americans across the country.

Millions of households owe thousands in back rent and utilities - and face a renewed threat of eviction in the new year. A growing share of unemployed individuals say their households don’t have enough to eat.

All these will come back to bite the American economy in the rear, making one wonder the logic behind each stock market record high and oil prices at near or above $50 a barrel.

“Successful vaccine execution is what is needed to send WTI crude well above the $50 level and that is unlikely to happen for months,” Ed Moya, analyst at New York’s OANDA said, referring to the U.S. crude benchmark.  “The virus spread across the US is going to test hospital capacity over a few states and that should see lockdowns extended throughout the next couple of months.  New York City is on the verge of another shutdown.” 

Energy Review 

Oil prices were up for a seventh straight week, the longest winning streak in 20 months, as bets for economic recovery in 2021 were turbocharged by expectations that a new Covid-19 fiscal relief worth almost $1 trillion will pass Congress soon.

In Friday’s session, New York-traded West Texas Intermediate, the leading indicator for U.S. crude, last traded at $49.06, after officially settling up 45 cents, or 0.9%, at $49.10 per barrel. The session high was $49.28 - less than $1 from the widely-anticipated $50 target of market bulls. WTI has not traded at $50 levels since February.

For the week, WTI was up more than 5%. The accumulated gain over the seven weeks was around 36%. It was also the longest winning stretch for oil since April 2019.

London-traded Brent, the global benchmark for crude, last traded at $52.32. It officially settled the session up 76 cents, or 1.5%, at $52.26 per barrel. For the week, Brent rose almost 5%. Its total gain over the seven weeks was nearly 40%.

Printing more money at the expense of inflation has always been a prime ingredient for boosting commodity prices, and most natural resource markets this week were up on talk of the impending coronavirus stimulus as well as the Federal Reserve’s pledge to buy more bonds to help the pandemic-struck economy.

But crude prices have also been helped by the trade’s cherry-picking of positive data while ignoring any negative news, including that of huge inventory builds and spikes in Covid-19 infections and resulting lockdowns, that could hurt the market.

“Whether oil prices can remain as high and keep these gains is still questionable amid the demand destruction lockdowns are causing,” Bjornar Tonhaugen, analyst at Rystad Energy, was quoted saying on Friday.

Scott Shelton, energy futures broker at ICAP in Durham, North Carolina, concurred with that view, adding: “With the lack  of conviction from the oil market on  its value, and unwillingness to take risk into year end, I think that we will be  ‘following the herd’ for the foreseeable  future.”

That “herd” meant an unbroken streak of weekly gains since the week ended Oct 23 that has cumulatively upped benchmark crude contracts by as much as $14 a barrel or nearly 40%.

Oil prices have been on a tear for almost two months now on bets that people across the world might soon be able to travel freely as millions of doses of coronavirus vaccines were being prepared for delivery over the course of the next few weeks, after approval by relevant health authorities.

The gains have, however, come on the back of hefty rises at times in weekly reports of U.S. crude inventories and stockpiles of fuel products gasoline and distillates.

And while global producer group OPEC+ has managed to prevent its 13 members and 10 allies from arbitrarily raising production, the market still seems indifferent to steadily creeping Libyan output. There’s also the potential of Iranian crude shipments returning to the market by early 2021 if U.S. sanctions against Tehran are dropped by the incoming Biden administration.

That aside, U.S. oil rigs - the gauge for determining forthcoming production - has risen 13 weeks out of the last 14, reaching 263 from last week’s count of 258. 

Energy Calendar Ahead

Monday, Dec 21

Private Cushing stockpile estimates

Tuesday, Dec 22

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Dec 23

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

Thursday, Dec 24

EIA weekly report on natural gas storage

Friday, Dec 25

Christmas Holiday

Precious Metals Review

Gold prices dipped Friday as the battered dollar rebounded from 2-½ lows. But that didn’t stop the yellow metal from posting a third straight weekly rise from gains accumulated on bets that the U.S. Congress will soon pass another coronavirus fiscal relief. 

Gold futures for February delivery on New York’s Comex last traded at $1,887, after officially settling the session at $1,888.90, down just 1.50, or 0.1% .

For the week, though, the benchmark gold futures contract rose 2.5%. It was the third straight weekly gain for the contract, which has risen $108, or 6%, in that period.

“Risk appetite over the past few days has been fueled on optimism Congress would finally deliver a coronavirus relief bill,” said Ed Moya, analyst at New York’s OANDA. “Some investors that bought the rumor don’t have the patience to wait for the actual bill to get finalized and are closing out of positions.”

“Gold appears unfazed …  and should eventually stabilize above the $1900 level next week,” Moya added.

TD Securities concurred with that view, citing the Fed’s decision on Wednesday to buy at least $80 billion per month of Treasury securities and $40 billion per month of agency mortgage-backed securities in a bid to provide maximum employment to Americans and price stability to the economy.

“With the Fed now comfortable allowing its policy rates to move above the stated 2 percent target, gold bugs may not need to wait much longer for a bullish catalyst as we expect the Fed to ease by increasing the weighted average maturity of its Treasury purchases at the December meeting,” the brokerage said in a note.

 

Energy & Precious Metals - Weekly Review and Calendar Ahead
 

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Comments (7)
Dustin Berg
Dustin Berg Dec 20, 2020 9:42PM ET
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buy bitcoin at 23k....lol.....joking
Mosa Mustikka
Mosa Mustikka Dec 20, 2020 9:42PM ET
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I quess Im too old To buy Hot air. Seen - 90 bad economy when People Lost homes and loans stayed. Intrest rate for student loan was 18pros. I Will stick To gold. I know silver is better but still.... Some things never go out of style like car color is Black.
samm TajanG
samm TajanG Dec 20, 2020 2:40PM ET
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keren 1900
Robert Cox
Robert Cox Dec 20, 2020 1:06PM ET
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If this new package moves to limit Fed spending downstream, does anyone think it will shake sentiment or is the market too euphoric to care?
Barani Krishnan
Barani Krishnan Dec 20, 2020 1:06PM ET
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I think the euphoria will override, Robert. Of course, any limitation on Fed will ultimately matter. Hope yesterday's agreement in principle holds: not to mess with the Fed's custodianship of inflation and broader economy.
Mosa Mustikka
Mosa Mustikka Dec 20, 2020 1:06PM ET
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One thing is sure there Will be More money issued yearly based.
Ben Ramirez
Ben Ramirez Dec 20, 2020 9:45AM ET
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So we really have no clue where the market is going in the next few days...
Barani Krishnan
Barani Krishnan Dec 20, 2020 9:45AM ET
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I think gold is poised for $1900 if an affirmative vote comes in for the stimulus by Sunday night, or even Monday. Equities will probably extend record highs and rally for a bit on the feel-good news, then likely tank on the surging Covid trends.
Berat Arda Dedekoca
Berat Arda Dedekoca Dec 20, 2020 8:22AM ET
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1900 + beyond this week 👍 also check out the cryptos .. nice article Barani 👏👏👏
Barani Krishnan
Barani Krishnan Dec 20, 2020 8:22AM ET
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Thanks, Berat. That looks likely. Wishing you a good week ahead.
Mosa Mustikka
Mosa Mustikka Dec 20, 2020 8:22AM ET
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Grypto might be good but it is same To go casino and Pet on Red Or Black.
Ed Kobilis
Ed Kobilis Dec 20, 2020 8:15AM ET
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1900 this week!
Barani Krishnan
Barani Krishnan Dec 20, 2020 8:15AM ET
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Likely, Ed.
Ed Kobilis
Ed Kobilis Dec 20, 2020 8:15AM ET
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1900 this week!
 
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