Monday, October 18, 2021

Energy & Precious Metals – Weekly Review and Calendar Ahead

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(C) Reuters

By Barani Krishnan — Is it the oil bull’s bogeyman? Or will the Delta variant hurt real – not just implied – demand for energy?

As one can imagine, it’s too early to tell, though the popular belief is that it won’t have the sort of devastating impact on energy markets as the original Covid-19.

And that’s probably true, thanks to the knowledge and experience we have cultivated over the past 18 months in dealing and living with the virus in our midst.

We also have vaccines and half or more of the population inoculated in some countries, including the United States – though the efficacy of existing shots against Covid variants and mutants being discovered each day is unknown.

What’s certain is that the pandemic is far from over, as much as oil bulls wish it were.

And the statistics will prove it. An average of roughly 124,200 coronavirus cases were reported each day in the United States alone in the week to Thursday, an increase of 86% from two weeks ago. Average daily hospitalizations are up to more than 68,800, an 82% increase over the last two weeks. The number of new deaths reported is up by 75%, to an average of 552 deaths per day.

“Delta is the new normal of Covid,” John Kilduff, founding partner at New York energy hedge fund Again Capital, said this week. “It will hamper daily activity, and, as a result, some of the oil demand that goes with that, as hard as those long the market might want to deny.”

This week again, the variant’s impact on oil – implied, as it may be, at this point – was proven as the story in crude hardly got any better after the previous week’s price plunge.

The insistent drone of the Covid narrative, via the Delta variant, and a dismal U.S. consumer reading for August put paid to any comeback by crude prices on Friday.

U.S. crude scraped together a tiny gain for the week, while Brent couldn’t even manage that.

Oil “is in a bit of a no-mans-land and it could take a few days to gather steam for another run,” Phil Flynn, analyst at Chicago’s Price Futures Group and a self-confessed oil bull, said. “If Covid concerns ease a bit then reports of falling global oil inventories should ignite another rally.”

Flynn’s remarks came after the watchdog for western oil consumers warned on Thursday that Covid’s Delta variant will slow down demand growth for energy in the second half of the year.

The outlook by the IEA, or International Energy Agency, came on the same day that OPEC, or the Organization of the Petroleum Exporting Countries, issued its oil demand forecast for 2021 and 2022. OPEC kept its forecast unchanged despite the risk of the Delta variant.

The IEA, on its part, put last month’s demand slump for oil at 120,000 bpd, or barrels per day. It also predicted growth to be half a million bpd lower in the second half than it had originally estimated in July.

Adding to the pessimism of the IEA, the University of Michigan said on Friday its closely followed U.S. Consumer Sentiment Index plunged to a decade low in August on concerns about another economic slowdown due to the Delta variant.

An average of roughly 124,200 coronavirus cases were reported each day in the United States alone in the week to Thursday, an increase of 86 percent from two weeks ago. Average daily hospitalizations are up to more than 68,800, an 82 percent increase over the last two weeks. The number of new deaths reported is up by 75 percent, to an average of 552 deaths per day.

Oil Price Roundup

New York-traded U.S. West Texas Intermediate crude, the benchmark for U.S. oil, settled down 65 cents, or 0.9%, at $68.44 per barrel. For the week, it rose 0.2% – barely a makeup for last week’s 7.7% plunge, which was its sharpest since October 2020.

London-traded Brent, the global benchmark for oil, settled down 72 cents, or 1%, at $70.59. For the week, Brent fell 0.2%, after last week’s 7.4% drop.

Energy Markets Calendar Ahead

Monday, Aug 16

Cushing inventory data from surveyor Genscape

Tuesday, Aug 17

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Aug 18

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, Aug 19

EIA weekly report on natural gas storage

Friday, Aug 20

Baker Hughes weekly survey on U.S. oil rigs

Gold Market & Price Roundup

Gold finished with a weekly gain of 1%, after the meltdown that took it to sub-$1,700 levels.

But the recovery was far from the fabled likes of a phoenix rising from its ashes. As the dust settled on Friday’s trade, longs in the market were still short of recapturing the key $1,800 level that would be prerequisite to the yellow metal regaining some bullish shine.

Gold’s front-month on New York’s Comex settled the day up $26.40, or 1.5%, at $1,778.20 an ounce.

It was a comeback of sorts for the benchmark gold futures contract that just on Monday settled at its lowest since March 31, at $1,726.50. Also, prior to the start of this week’s U.S. session, the front-month contract plunged to $1,672.80 in Asian trading in what has largely been characterized as a “flash-crash”.

Analysts acknowledged the rebound but noted that gold was stuck now in a $1,740-$1,760 range since and said it needed to do more to return to a bullish track.

“If it can break above here, it would be quite the turnaround but I’m not convinced (that) would be sustainable,” said Craig Erlam, analyst at New York’s OANDA.

Erlam also said there could be fresh trouble for gold longs as the Federal Reserve’s Jackson Hole symposium neared, saying: “I’d be surprised to see any significant gains ahead of the event.”

The Jackson Hole gathering in Wyoming is an annual retreat for the Fed to examine key strategies for U.S. monetary policy. There is high speculation that this year’s event, scheduled between Aug 26 and 28, will discuss the tapering of the $120 billion in monthly stimulus that the central bank has been providing the economy since the Covid outbreak of March 2020.

Speculation about a stimulus taper has heightened since last week’s upbeat U.S. jobs report for July that sent the dollar and U.S. U.S. bond yields rallying, crushing gold.

Since January, gold has been on a tough ride that began in August last year – when it came off record highs above $2,000 and meandered for a few months before stumbling into a systemic decay from November, when the first breakthroughs in Covid vaccine efficiencies were announced.

After initially bottoming out at under $1,675, gold appeared to break its dark spell with a bounce back to $1,905 in May. From there, it saw renewed short selling that took it back and forth between $1,700 and $1,800 for a while before last week’s move toward $1,600.

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

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