Energy & precious metals - weekly review and outlook 

© Reuters.

As the U.S. debt crisis talks yanked Wall Street all over the place this week, the two leading energy commodities could not have closed in a more disparate fashion. 

Oil limped in with its first weekly gain in five after following blow-by-blow the account of negotiators at the talks. 

Natural gas, meanwhile, surged effortlessly as bulls plowed on with the faith that America’s favorite fuel for indoor heating and cooling was turning the corner on fundamentals.

Crude prices reversed Friday’s early rally to end lower to the disappointment of longs in the market that talks to raise the U.S. debt ceiling hit an impasse again.

President Joe Biden and his main Republican rival in Congress Kevin McCarthy had previously said they were closer than before to a deal to raise the $31.4 trillion U.S. debt ceiling, and that a conclusion could come as early as Sunday to avoid a federal default on payments by June 1.

By Friday though, it was clear that the talks were going nowhere. 

Ed Moya, analyst at online trading platform OANDA, added: “A big risk for debt-limit talks [was] that negotiations were too easy and that could have triggered an early vote."

Referencing the bailout package negotiations during the 2008-2009 Great Financial Crisis, Moya said: “Wall Street has seen this movie before and we needed to see some tension amongst negotiators, in order for a reasonable deal to be reached.” 

But those long oil still earned a reprieve from positive closes in two days of the week — Monday and Wednesday — which overrode weakness in the other three.

New York-traded West Texas Intermediate crude and London-traded Brent oil both lost about 0.5% on Friday while gaining about 2% on the week. The two benchmarks had accumulated double-digit losses over four previous weeks. 

Limiting some of oil’s loss was Friday’s weakness in the dollar, which made dollar-denominated commodities like crude more affordable to holders of other currencies. 

“Traders were reluctant to go into the weekend short, on the off chance that an agreement to raise the U.S. government’s debt ceiling is struck over the weekend,” Vandana Hari, founder of oil markets advisory Vanda Insights, told Reuters, explaining the run-up earlier in the day. 

And as implausible as it seemed in Friday’s late market hours, media reports suggested Biden and McCarthy could reconvene on Sunday to try and take another stab at an agreement. 

A source familiar with the negotiations said Republicans had proposed an increase in defense spending, while cutting overall spending. Congressional Republicans voted to raise the debt ceiling three times, with no budget cut pre-conditions, when former President Donald Trump was in the White House.

On the global oil supply front, the International Energy Agency said it does not expect supply of crude and oil products to change from moves by the Group of Seven nations to counter the evasion of price caps on Russian energy.

Natural gas had its biggest weekly rally in three months — 14% — on the back of what some sensed as improving fundamentals for the fuel, despite a supply glut.

U.S. natural gas storage rose by 99 billion cubic feet, or bcf, last week, the Energy Information Administration, or EIA, said Thursday, announcing a smaller-than-expected build that bolstered sentiment in a market that needs to see fewer stockpile increases and more demand.

“The market expected a 108-109 bcf injection, and immediately following the release [of the data, the] prompt price rallied,” Gelber & Associates, a Houston-based advisory for energy markets, said in a note.

The build in gas inventories for the week ended May 12 compares with the 78-bcf increase from the previous week. 

Notwithstanding the smaller-than-expected build for last week, the latest inventory rise put total gas in underground caverns in the United States at 2.24 trillion cubic feet, or tcf. That was 30.3% higher than the year-ago level of 1.719 tcf and 17.9% above the five-year average of 1.9 tcf.

Gas bulls contend that those neutral or short the market were being deceived by the “lull” before the storm of summer heat, reduced production, lower-wind conditions and higher liquefied natural gas demand combo which could invariably lead to higher prices.

Oil: Market Settlements and Activity 

New York-traded West Texas Intermediate or WTI crude posted a final post-settlement trade of $71.67 per barrel after officially settling Friday’s session at $71.55 — down 31 cents, or 0.5%. Week-to-date though, WTI was up about 2%. The U.S. crude benchmark fell a cumulative 15% over four prior weeks.

London-traded Brent crude, the global benchmark for oil, posted a final post-settlement trade of $75.59 per barrel after officially settling Friday’s session at $75.58 — down 28 cents, or 0.4%. For the week, Brent was also up 2% after four previous weeks of losses totaling 14%.

Both WTI and Brent had rallied by more than $1 earlier on Friday on optimism that the debt ceiling talks were making progress. The U.S. benchmark hit a session high at $73.40 while the global gauge peaked at $77.50.

Oil: WTI Price Outlook

WTI needs to hold above mid $71 and sprint past $73 if oil bulls are to recapture the market’s recent upside, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com. 

“In the week ahead, $71.55 acts as support while a break below $69.40 could be a turning point for a further drop towards the 200-week SMA, or Simple Moving Average, of $67,” said Dixit.

He said stability above $71.55 will keep WTI in positive territory, helping bulls eyeing a retest of the $73.40 level.

Clearing through $73.80 will favor a charge towards the extended Weekly Middle Bollinger Band of $76, Dixit said.

Natural gas: Market Settlements and Activity 

One of the most depressed commodity markets is beginning to show signs of an upside.

Natural gas futures posted double-digit gains this week, looking poised to break further from the restraints of mid-$2 pricing that has characterized much of the trading since March in America’s favorite fuel for indoor heating and cooling.

The front-month gas contract on the New York Mercantile Exchange’s Henry Hub did a final post-settlement trade of $2.593 per million metric British thermal units, after settling Friday’s trade at $2.5850 — virtually unchanged from Thursday’s gain of 22.7 cents, or 10%. 

In the latest session, the benchmark gas contract hit a two-month high of $2.683 — versus the $2.50 level which has been its ceiling since March. 

More importantly, the Henry Hub’s front-month finished this week up 14%, adding to last week’s 6% gain.

Despite the rally, gas futures remain down more than 40% on the year, a phenomenon from troubles that began in the last quarter of 2022.

Natural gas: Price Outlook

Further upside in gas requires strong acceptance above the $2.69 level for the next leg higher onto the 5-month EMA, or Exponential Moving Average, of $2.98, followed by the 100-month SMA at $3.25, said Dixit of SKCharting.

“Natural gas futures have confirmed price action breakout at above $2.53 after a prolonged consolidation above the 5-week EMA, dynamically positioned at $2.35, and supported by the horizontal demand zone of $1.95,” Dixit said.

He said the Weekly Middle Bollinger Band of $2.55 may, however, cause some sideways movements with temporary rebalancing to match $2.35. 

Gold: Market Settlements and Activity 

The U.S. debt drama flashing red on Friday helped gold bulls see green.

A fresh breakdown in talks to raise the U.S. debt ceiling drove the dollar lower on Friday for the first time in five sessions, helping alternative safe havens, led by gold, to rally. 

It had been a bruising week for gold bulls, who almost lost the recent upward trajectory in the metal after its rally earlier this month to record highs.

Gold for June delivery on New York’s Comex posted a final post-settlement trade of $1,979.90 per ounce after officially settling Friday’s session at $1,981.60 an ounce, up $21.80, or 1.1% on the day. 

The benchmark gold futures contract fell to as low as $1,954.40 Thursday’s session, after hitting an all-time high of $2,085.40 on May 4. For the week, June gold was off 2%.

The spot price of gold, which reflects physical trades in bullion and is more closely followed than futures by some traders, settled at $1,977.80, up $20.22, or 1%. Spot gold fell to as low as $1,952.03 in the previous session, after a record high of $2,073.29 earlier this month. For the week, spot gold was down 1.5%.

Had gold broken below $1,940 this week, the yellow metal’s upside might have been over from a chart perspective, said Dixit of SKCharting.com.

Gold: Price Outlook 

Going into the week ahead, gold bulls need to meet the 5-week EMA, or Exponential Moving Average, dynamically positioned at $1,990 and move further up the resistance zone towards the Daily Middle Bollinger Band of $2,005, Dixit said.

“The Weekly Middle Bollinger Band of $1,935 and the 100-day SMA of $1,928 are possible support areas if gold breaks below $1,949 and the 50% Fibonacci level of $1,942 fails to hold support,” he said.

Dixit noted that last week was gold’s second on the tumble, after it had reached record highs of around $2,080. “The drop has attracted fewer buyers the second time around as gold hit the $1,952 support, which helped it reprise the weekly settlement of $1,976.”

To help gold recapture its upside, the Dollar Index could retreat to 102.85-102.65 and eventually break below 102.55-102.25 and 101.90 and 101.70. 

But sustainability above 103.50 for the Dollar Index could propel it into the next higher leg of 103.96 and 104.45, Dixit said, complicating gold’s path higher,  Dixit added.

Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about.