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Energy & Precious Metals - Weekly Review and Calendar Ahead

Apr 11, 2021 04:31AM ET
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© Reuters.

By Barani Krishnan

Investing.com — Is Europe turning the corner on the coronavirus? That remained an enigma on Friday despite the bloc ramping up on vaccinations — a mixed variable that sent crude prices down as much as 3.5% on the week. 

One worry — and a big one — that hangs over Europe is the resurgence of the pandemic via the U.K. strain that has made its presence felt since October. The B.1.1.7. variant, first seen in Britain, is spreading in at least 114 countries. It is not only more contagious than the original Covid-19, but also deadlier.

That’s why Europe’s progress in vaccinations this week was met with a measured response by markets. The bloc’s advancement in immunization wasn’t bad:  Germany doubled the number of daily Covid-19 vaccinations and France hit a key immunization milestone a week ahead of schedule.

Italy, meanwhile, was set to ease lockdown restrictions as contagion rates slowed.

With the United States setting vaccination records almost daily and leading the world in assuring a faster return to normal life despite continued breakouts in some US states, Europe represents the missing piece of the global energy demand jigsaw.

Put simply, what happens in Europe through April will determine how demand for gasoline, diesel and jet fuel will shape in the second quarter — the busiest period for global travel, which typically lasts till the end of Q3 in September.

Earlier this week, reporting on the pandemic showed B.1.1.7 cases continuing to scorch parts of Europe — with Poland experiencing 60 times more coronavirus infections than a year ago. Germany’s infection rate has doubled, triggering a ban on nighttime gatherings in Berlin.

India, the third largest crude buyer after China and the United States, had also been experiencing a record of more than 100,000 daily infections.

That’s why futures of both U.S. crude and global benchmark Brent ended the week down more than $1.50 a barrel each.

To be fair, much of the week’s price drop was due to a 4% slump seen on Monday alone as the market reacted to the decision by producer alliance OPEC+ to ease output cuts between May and July, despite a less-than-rosy Q2 demand outlook.

While crude prices rebounded from Monday’s lows, the recovery was too feeble to make a difference on the week, in the face of on-off problems in Europe.

“The crude demand outlook for Europe and emerging markets is still messy and until optimism returns, oil prices could remain heavy,” said Ed Moya, who heads US markets research for online broker OANDA. “Oil is in for a choppy trade environment over the next couple of weeks.”

Despite watching the B.1.1.7 variant wallop Britain, lawmakers in continental Europe were slow to react, resulting in the current problem, the New York Times said in an overview Friday.

In late January, President Emmanuel Macron of France defied calls from his scientific advisers for new restrictions. Now daily cases have doubled, hospitals are swelling with patients and Macron has imposed a third national lockdown.

Other variants of concern besides B.1.1.7 are also present in Europe. B.1.351, the variant first detected in South Africa, has been found to reduce the effectiveness of some vaccines, including AstraZeneca’s, which is being widely used across the continent.

And P.1, the variant that has driven hospitals in Brazil to the breaking point, appears to be more contagious than the original form of the virus and also contains a mutation that diminishes the vaccines' effectiveness.

“What’s surprising to me is how many countries didn’t anticipate what B.1.1.7 would bring,” said Devi Sridhar, a professor of global public health at the University of Edinburgh in Scotland. “People underestimated it, instead of saying we should learn from what’s happening in the U.K.”

What happened this winter in the U.K. was mass death and deluged hospitals on a scale not seen earlier in the pandemic. Since B.1.1.7 was first sampled in late September, 85,000 people have died. Four million people — one out of every 17 Britons — have recorded infections.

In some ways, Europe is better prepared. Countries began sequencing virus samples more aggressively in January and February. Despite supply hiccups and a safety scare with AstraZeneca (NASDAQ:AZN), about 14% of the population has received at least one dose of a vaccine. The vaccines offer robust protection from B.1.1.7. And new cases across Europe have dipped slightly in recent days.

But a vast majority of people remain susceptible. And once people become largely protected from B.1.1.7, scientists fear, other variants could gain an upper hand by partly sidestepping immune responses.

That is why France has tried to stop B.1.351 from gaining a foothold in the country’s east by accelerating vaccinations there. All of the leading vaccines are expected to prevent serious disease and death from any of the variants, making any future waves in heavily vaccinated countries less deadly.

Vaccines will eventually defeat the variants, scientists say. And stringent restrictions can drive down cases of B.1.1.7. They have done so not only in Britain, but also in Ireland and Portugal, which were hit by the variant soon after Britain and have since begun to gradually reopen.

But even those countries are not out of the woods yet. “We need to make sure we unlock very slowly, and make sure vaccines increase and cover as many people as possible, including kids,” said Stephen Griffin, a virologist at the University of Leeds in Britain.

And once a variant overwhelms a particular nation or region, it can become so much harder to fight.

“We’ve seen in so many countries how quickly it can become dominant,” said Lone Simonsen, a professor and director of the PandemiX Center at Roskilde University in Denmark. “And when it dominates, it takes so much more effort to maintain epidemic control than was needed with the old variant.”

Crude prices have also come under pressure after Iran opened talks with global powers in Vienna this week to find a way to end the two-year long U.S. sanctions on its oil imposed by the former Trump administration. 

The White House, now under President Joseph Biden, is agreeable to ending the sanctions, provided Tehran shows proof that its nuclear program isn’t capable of producing an atomic bomb. Iran is, however, demanding the sanctions be removed first before it makes such concessions. 

Despite the differences between the two sides, the talks have made progress almost everyday since they began on Tuesday, reports said.

Iran has said that it could return “within months” to its peak oil production of nearly 4 million barrels a day once the sanctions are lifted. Sources familiar with the country’s crude output estimate its current production at around 2 million barrels daily. 

 

Analysts say the additional supply from Iran, whenever that comes, will lead to a reconfiguration of global oil supply that could be more bearish than bullish.

Be that as it may, an official of the Biden administration said on Friday that not every sanction existing against Iran may be lifted. “There are some that are legitimate sanctions even under a very fair reading, scrupulous reading“ of the deal, the senior State Department official said, Politico reported.

Oil Price Roundup 

New York-traded West Texas Intermediate, the benchmark for U.S. crude, did a final trade of $59.34 before the weekend. It settled Friday’s session down 28 cents, or 0.5%, at $59.32 per barrel. For the week, WTI fell 3.5%.

London-traded Brent, the global benchmark for crude, did a final trade of $63.01 per barrel prior to the weekend. It settled Friday’s session down 25 cents, or 0.4%, on Friday at $62.95.  For the week, Brent was down 3%

Gold Market Brief & Price Roundup

Gold prices slid on Friday but still ended the week up 1% as the yellow metal emerged partially victorious from its fencing duels with U.S. bond yields and the dollar which were sluggish most of the week from mixed readings on inflation.

Benchmark gold futures on New York’s Comex did a final trade of $1,744.60 before the weekend. Comex gold settled Friday’s session down $13.60, or 0.8%, at $1,744.80 an ounce. For the week, however, it rose 1.05%.

The spot price of gold settled at $1,743.94, down $11.68, or 0.7%. For the week, spot gold rose 0.8%. Moves in spot gold are integral to fund managers, who sometimes rely more on it than futures for direction.

Both spot and gold futures broke above $1,750 on Thursday, smashing the key resistance the first time in six weeks, as bond yields and the dollar retreated from their recent highs. 

On Friday, the benchmark yield on the U.S. 10-year Treasury note hovered at 1.66% versus its 14-month high of 1.77% hit on March 30.

The Dollar Index, which pits the greenback against the euro and five other major currencies, was at 9216, versus the 93.13 level it scaled on.

Technical charts for both Comex and spot gold indicate a potential return to $1,800 pricing if the yellow metal reprises this week’s highs at next week’s close.

“A weekly close above $1,755 would really confirm potential for the next target of $1,780-$1,835 and possibly beyond,” said Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India.

But some think yields and the dollar could also rebound and cut short the gold rally.

“With the dollar and Treasury yields on the rise, gold is once again out of favour today, although it is still on track for a rare weekly gain,” said Sophie Griffiths, markets analyst for online broker OANDA.

“With expectations of a strong US economic recovery, there’s a good chance that the move higher in gold will be short-lived.”

Gold had a scorching run in mid-2020 when it rose from March lows of under $1,500 to reach record highs of nearly $2,100 by August, responding to inflationary concerns sparked by the first U.S. fiscal relief of $3 trillion approved for the coronavirus pandemic. 

Breakthroughs in vaccine development since November, along with optimism of economic recovery, however, forced gold to close 2020 trading at just below $1,900.

Since the start of this year, gold has had more headwinds as the dollar and bond yields often surged on the argument that U.S. economic recovery from the pandemic could exceed expectations, leading to fears of spiralling inflation as the Federal Reserve kept interest rates at near zero.

Gold’s fall from grace in 2021 is more remarkable if considered from the perspective of the additional Covid-19 relief of $1.9 trillion passed by Congress in March, and the Biden administration’s plan next for an infrastructure spending bill of $2.2 trillion.

The dollar debasement from these stimulus measures should have sent gold rallying as an inflation hedge. But the opposite has often happened.

Energy Markets Calendar Ahead

Monday, April 12

Private Cushing stockpile estimates

Tuesday, April 13

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, April 14

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

Thursday, April 15

EIA weekly report on {{ecl-386||natural gas storage}

Friday, April 16

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 (7)
Axel Le Gamin
Axel Le Gamin Apr 11, 2021 1:36PM ET
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Who is Joseph biden
Barani Krishnan
Barani Krishnan Apr 11, 2021 1:36PM ET
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Ask Google
Pilot TwoFive
Pilot TwoFive Apr 11, 2021 1:36PM ET
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A fraud.
Barani Krishnan
Barani Krishnan Apr 11, 2021 1:36PM ET
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Google fraud. Trump may actually come up. It did for me :)
Rafael Undurraga
Rafael Undurraga Apr 11, 2021 9:42AM ET
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The oil should continue going down...more production with the same demand...we should see the price soon in US$50
danny Levine
danny Levine Apr 11, 2021 9:42AM ET
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everyone wants it cheap haha
Evan Ault
Evan Ault Apr 11, 2021 9:21AM ET
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what are you fear merchants going to write about when nobody cares about the shamdemic anymore?
Barani Krishnan
Barani Krishnan Apr 11, 2021 9:21AM ET
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Evan Vault, rather than show your frustration with what's being reported, it would be better for you to focus on the best trading strategies in a situation like now. Don't try and change the news; change your approach.
SunilKumar Dixit
SunilKumarDixit Apr 11, 2021 9:21AM ET
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Evan Ault. Those who respect price action and prevailing trend will not have fear. The author always writes about what is going on in the market and how the unfolding events may impact the market prices given the developing scenario. Evan Ault. Find no fault. Appreciate the good work.
SunilKumar Dixit
SunilKumarDixit Apr 11, 2021 8:20AM ET
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Congrats Sire. Beautifully explained the Iran possibilities on Oil output and the importance of negotiations over sanctions. Also the laboured rally in Gold pushing it to 1758, chances of continuation as well as risks of yield spoil sport. The week ahead promises interesting show.
Barani Krishnan
Barani Krishnan Apr 11, 2021 8:20AM ET
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Thanks much, Sunil :) There are still some frustrated souls like Evan Ault above.
Salim Hamdulay
Salim Hamdulay Apr 11, 2021 8:20AM ET
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4 lines for naturalgas.....? sir
Dony Herfis
Dony Herfis Apr 11, 2021 8:16AM ET
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i hope tomorrow eurousd bearish...
Barani Krishnan
Barani Krishnan Apr 11, 2021 8:16AM ET
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Possibly. Let's see :)
Francesco Lucchesi
Francesco Lucchesi Apr 11, 2021 8:12AM ET
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Italy contagion is not slowing. it's increasing again. the UK will reopen on Monday. expect another huge wave of deaths. repeat of last year
SunilKumar Dixit
SunilKumarDixit Apr 11, 2021 8:12AM ET
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Francesco Lucchesi. You said it right. The contagion is back with frightening numbers and this is a serious threat this time.
Evan Ault
Evan Ault Apr 11, 2021 8:12AM ET
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don't get fleeced again sheep
Barani Krishnan
Barani Krishnan Apr 11, 2021 8:12AM ET
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Evan Ault  Focus on what works; don't fight the tape
Mse II
Mse II Apr 11, 2021 5:09AM ET
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lots of garage here
Barani Krishnan
Barani Krishnan Apr 11, 2021 5:09AM ET
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Focus on how to trade; not venting on what's being reported.
SunilKumar Dixit
SunilKumarDixit Apr 11, 2021 5:09AM ET
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Mse II. It's about the perspective. You find what you want. It's about the mood and self image.
 
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