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Energy & Precious Metals - Weekly Review and Calendar Ahead

CommoditiesOct 03, 2021 04:28AM ET
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© Reuters.

By Barani Krishnan

Investing.com - Forget that OPEC+ will be meeting again Monday. Or that the U.S. jobs report for September will be out Friday. 

Think instead of Merck’s Covid pill announcement from the Friday that just passed, because that could be bigger for risk in the near term than anything else.

For those who remember, global risk assets got a major shot in the arm when Covid-19 vaccine efficiencies ( Pfizer (NYSE:PFE) 95%, Moderna (NASDAQ:MRNA) 94%) were announced for the first time in November. Brent, the international benchmark for oil, jumped 27% that month alone, and is already up 53% this year. 

To be sure, it’s still early in the day for the Merck pill, the first oral drug of its kind for the coronavirus. Despite the early euphoria over vaccines, their rollouts haven’t been quite as imagined, with the poorest parts of the world still awaiting the doses while politics keep large numbers unvaccinated in the most privileged countries. 

What’s evident is that nations are pushing to keep their economies open despite the Covid terror reintroduced by the Delta variant. But what also keeps many from resuming a “normal life” is fear of infection from new caseloads that keep spiking every now and then.

For the record, Merck (NYSE:MRK) says the molnupiravir pill it jointly developed with Ridgeback Biotherapeutics has reduced the risk of hospitalization or death by approximately 50% in unvaccinated patients.

Molnupiravir’s efficacy was not affected by the timing of symptom onset or patients’ underlying risk factors, Merck’s study showed. It also proved to be consistently effective in treating all variants of Covid, including the widely dominant and highly transmissible Delta.

Merck says it has already begun producing molnupiravir. The pharmaceutical giant expects to produce 10 million courses of treatment by the end of 2021, and more doses in 2022.

The company agreed earlier this year to supply the U.S. with around 1.7 million courses of molnupiravir pending emergency authorization for the drug from the Food and Drug Administration. The federal government also has the option to purchase additional doses if the drug is approved, White House coronavirus response coordinator Jeff Zients said at a briefing Friday.

Merck has entered supply and purchase agreements for the drug with other governments — pending regulatory authorization — and is in discussions with other governments about the supply of molnupiravir.

The company plans to implement a tiered pricing approach based on World Bank country income criteria to ensure molnupiravir can be accessed globally. Merck previously announced that it had entered into nonexclusive voluntary licensing agreements for molnupiravir with generic manufacturers, a move intended to assist low and middle-income countries in gaining access to the treatment. Those agreements are also pending approvals or emergency authorization by local regulators.

As Merck awaits FDA approval for the pill, the idea of a game changer in recovery that might be more acceptable than a vaccine could sweep markets up in a new fervor of risk.

Aside from energizing risk appetite, the pill might help stimulate jobs recovery in greater numbers, convincing the Federal Reserve to boldly decide on its stimulus taper and eventual rate hike. Yes, bulls salivating over new highs in oil and stock prices shouldn’t forget about the prospect of swifter Fed action either. 

With the threat of inflation getting more insane by the day, putting people back to work and fixing broken supply chains should be a greater priority, even if it means attracting higher interest rates that could temper bulls markets.

Oil Market & Price Roundup

Oil had its best month in three for September, gaining almost 10%. It made a strong debut for October as well, based on the euphoria over Merck’s Covid pill, despite OPEC+ reportedly planning to push out more barrels to the market than initially planned.

New York-traded West Texas Intermediate, the benchmark for U.S. oil, settled October’s first session up 85 cents, or 1.1%, at $75.88 per barrel. For the week, WTI rose 2.6%. For September, it gained 9.5%, its most since June. For the third quarter, the U.S. crude benchmark rose 2%.

London-traded Brent crude, the global benchmark for oil, finished Friday’s session at $79.28 per barrel, up 97 cents, or 1.2%.  Brent rose 1.9% on the week. For  September, it gained 7.6%, its most since June. For the third quarter, the global crude benchmark rose 4.5%. 

OPEC+ — comprising the 13-member Saudi-led Organization of the Petroleum Exporting Countries and a group of 10 other producers steered by Russia — is considering going beyond its existing deal to boost production by 400,000 barrels per day when it meets next week, four sources familiar with the alliance’s thinking were reported saying. 

The move was against a backdrop of a near three-year high in oil prices and pressure from consumers for more supply, the sources said.

While OPEC+ initially stonewalled demands for more crude during the summer from a White House trying to clamp down on inflation, “this time it’s different”, said Ed Moya, an analyst at online trading platform OANDA. 

“OPEC+ could easily justify delivering more than the gradual 400,000 bpd increase in November and they probably should consider doing so,” said Moya. ““The energy crunch could trigger massive volatility and dampen global growth prospects, so OPEC+ should consider a tweak.”

Natural gas prices surged 35% in U.S. trading in September on worries that the entire northern hemisphere — which comprises North America, Europe, the northern two-thirds of Africa and most of Asia — might be short of the fuel for power generation in the coming months, as well as heating in the winter.

The knock-on effect from gas has even led to a doubling in prices of coal — the world’s least-liked commodity from an environmental perspective. Australian thermal coal at Newcastle Port, the benchmark for the vast Asian market, has climbed 106% this year to more than $166 per metric ton, according to end-September pricing data.

“People are starting to throw the ‘crisis’ word around” when it comes to Europe, John Kilduff, a partner at the Again Capital hedge fund in New York, told CNBC. “Europe is squarely behind the eight ball going into the winter season. It’s going to put the focus on this commodity that’s been overlooked for the last several years.” 

The price of keeping the lights on in Spain has tripled, reflecting a broader spike in power bills across the EU in recent weeks. Spain, Italy, Greece, Britain and other others are planning national measures, ranging from subsidies to price caps, aiming to shield citizens from rising costs as economies recover from the Covid-19 pandemic.

Gold Market & Price Roundup

In a sign that its worst may be over — for now that is — gold made a modest gain as trading for October began, joining most risk assets trying to recover from September’s hellish ride.

A retreat in both the dollar and U.S. bond yields also helped gold post a second straight week of gains, small as they may be. 

U.S. gold futures’ most active contract, December, settled Friday’s trade at $1,758.40 per ounce on New York’s Comex, up $1.40, or 0.1%. 

For the week, it managed a 0.4% gain despite Thursday’s 2% trouncing that contributed to September’s torrid loss of 3.4%.

“We may be seeing gold enjoy some safe-haven flows as the outlook becomes increasingly more uncertain,” said Craig Erlam, analyst at online trading platform OANDA. 

“It will be interesting to see if it can maintain these gains if risk aversion continues in the coming weeks. Many obstacles remain to the upside which will make any ascent very challenging. The first of these is $1,760 where it ran into resistance yesterday, followed by $1,780.”

Energy Markets Calendar Ahead

Monday, Oct 4

Cushing crude inventory estimates (private)

Tuesday, Oct 5

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Oct 6

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

Thursday, Oct 7

EIA weekly report on natural gas storage

Friday, Oct 8

Baker Hughes weekly survey on U.S. oil rigs

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

 

Energy & Precious Metals - Weekly Review and Calendar Ahead
 

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Comments (9)
ROOKIE TRADER
ROOKIETRADER999 Oct 04, 2021 3:04PM ET
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I'm thinking oil is going a little bit more higher but probably not ... main charts is showing equator isnt it ? how far crude oil and NG will go? is it best time to sell for long term ? thank you
Meru Pet
Meru Pet Oct 03, 2021 12:03PM ET
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Also for gold, I don't understand why its price would go higher. -1 it disappointed the investors in 2021 (until now) -2 if the interest rates are really rising, it should likely make gold cheaper... unless investors start to distrust the banking system. I don't think we are there. If there is a correction in the stock market, it can convince people to buy gold. I am not sure, it's enough to really correct the price of gold.
Jason Patcher
Jason Patcher Oct 03, 2021 12:03PM ET
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I agree with (1), true, gold was hot at 2000 and is now boring at 1760. (2) at least next week I see rates stabilize, and the following week is when they rise as political deadline starts to loom. (3) safe haven return could only help so it's a tailwind at this point. (A) the ups and downs recently have been fun, bears and bull both making money.
Barani Krishnan
Barani Krishnan Oct 03, 2021 12:03PM ET
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Jason Patcher  /Meru: You need ask to JPM: Are you stepping back from your systemic destruction of bullion?
Meru Pet
Meru Pet Oct 03, 2021 11:58AM ET
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so in your opinion, oil is going to be more expensive because the news of the Merck pill is bullish for oil?
Barani Krishnan
Barani Krishnan Oct 03, 2021 11:58AM ET
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It will probably be capped at between $75 and $80 as supply de-bottlenecking from more field deployment upstream will probably mitigate more demand coming forth.
KAMAL AHMED
KAMAL AHMED Oct 03, 2021 11:26AM ET
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Very informative. Thank you Mr. Barack.
Barani Krishnan
Barani Krishnan Oct 03, 2021 11:26AM ET
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You mean, Barani :) Have a good one.
Melvin Dsouza
Melvin Dsouza Oct 03, 2021 10:45AM ET
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Thank you for such valuable & well articulated insights Barani
Barani Krishnan
Barani Krishnan Oct 03, 2021 10:45AM ET
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You're most welcome, Melvin. As I told Todd below, it's readers like you who keep me going. Bests, a great weekend and week ahead.
MAP SR
MAP SR Oct 03, 2021 10:19AM ET
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Based on the beginning of this article, it seems to me that due to the Merck pill risk on is back.
Barani Krishnan
Barani Krishnan Oct 03, 2021 10:19AM ET
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Yes, sir. For now, at least.
Barani Krishnan
Barani Krishnan Oct 03, 2021 10:19AM ET
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But don't forget that if it strengthens the reopening, it could be another thing to set up a more hawkish Fed.
MAP SR
MAP SR Oct 03, 2021 10:19AM ET
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Thanks, Barani. I like your perspective of having an open mind regarding all perspectives.
Barani Krishnan
Barani Krishnan Oct 03, 2021 10:19AM ET
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MAP SR  You're most welcome, mate. We need to look at both sides of the coin for sure. Yes, we could have a bias -- I think "preference" is a more appropriate expression here (ha ha) -- but we should never lose sight of reality. Bests, a great weekend and week ahead.
Mart Bab
Rubberduck1973 Oct 03, 2021 6:45AM ET
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Wrong on 2 occasions. 1 anti vaccine people are not going to take a pill, because in the pill are even more Microsoft tracking chips . 2 the turn around in gold is not a sign that the wurst is over. It’s a sign the market is starting to wake up and realizing that the FED is nog going to put the brakes on inflation. Inflation in here to stay and the only way all, I repeat, all governments are going to be able to pay off the largest debt creation in history. This is so obvious. But every investor has been blindsided by the rally in stock markets. Why stray away from the greatest opportunity ever. Well, that opportunity is grinding to a holt. And investors, being investor, will start looking for other opportunities and cash in on the prior as they stall. And dive in to gold. It started last Friday. They got it cheap.
Barani Krishnan
Barani Krishnan Oct 03, 2021 6:45AM ET
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Rubberduck, keep your political chips to yourself and let's focus on what's at stake for the markets here. Gold got a break because JPM and other bullion banks have stepped away for now from their systemic destruction of its price. That's why I characterized it as "worst may be over for now". Yaa, "cheap". I just used a different expression.
Todd Holaday
Todd Holaday Oct 03, 2021 6:45AM ET
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Barani Krishnan Besides always getting value from your articles, I also appreciate you answering the replies. I wish more analysts did that.
Barani Krishnan
Barani Krishnan Oct 03, 2021 6:45AM ET
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Todd Holaday  Thanks much, mate. It's readers like you who keep me going. Bests, a great weekend and week ahead.
john dislias
john dislias Oct 03, 2021 6:21AM ET
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Total , eni , shell , dainler put options or short because they are too high , overbought rsi and price far away from moving averages. Also , spce will fill the gap at $30+ the reason of decline was the probe and this was resolved . Philips soon 46 -50€ .
john dislias
john dislias Oct 03, 2021 6:21AM ET
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*daimler
Barani Krishnan
Barani Krishnan Oct 03, 2021 6:21AM ET
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john dislias  Thanks for the perspectibve.
john dislias
john dislias Oct 03, 2021 6:21AM ET
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Barani Krishnan you are welcome
Empire Destroyer
Empire Destroyer Oct 03, 2021 4:50AM ET
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I really hate how gold gets dumped, it really should be in 2k+ territory now. I mean buying physical gold bars atm is really difficult, not enough supply 🤣
Show previous replies (1)
Barani Krishnan
Barani Krishnan Oct 03, 2021 4:50AM ET
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Totally.
Earl Sargeant
Earl Sargeant Oct 03, 2021 4:50AM ET
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I believe its in a tug of war with the crypto markets on who can grab the most investors .. just my opinion
Barani Krishnan
Barani Krishnan Oct 03, 2021 4:50AM ET
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Earl Sargeant  You're not wrong, either. But Empire is totally right on the forced dump in gold to keep DX afloat.
SunilKumar Dixit
SunilKumarDixit Oct 03, 2021 4:50AM ET
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Even if the government succeeded keeping Gold suppressed further away, even if below 1800 for a bit longer, even if below 1700 to 1600 areas in the worst case, how long will they be able to keep Gold from breaking free and one fine day, Gold is going to be the only refuge, the only safe haven. The government can never cope with the ever mounting debt and air being pumped into dollar balloon will meet its ugly fate. Many will disagree only to see things happening later
SunilKumar Dixit
SunilKumarDixit Oct 03, 2021 4:50AM ET
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James Johannsen. Very true. And the same JPM and the likes will start hoarding big time at the height of pessimism and create a new FOMO frenzy among retail traders who are being made to liquidate their longs.
 
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