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Precious Metals & Energy - Weekly Review and Calendar Ahead

·8 min read

By Barani Krishnan

Investing.com -- Will WTI survive the $30 test?

“It’ll be tough to break for sure, but I think it’s surely going to be tested,” John Kilduff, founding partner at New York energy hedge fund Again Capital, said, referring to WTI and the $30 per barrel support it has held since June.

In October’s final session on Friday, the West Texas Intermediate printed a last trade of $35.77. It earlier settled the official session down 38 cents, or 1.1%, at 35.79.

For the week, the U.S. crude benchmark lost 10.2% for its biggest weekly loss since April. For the month, WTI fell 11% for its sharpest deficit since March.

But more importantly, was the low WTI set for the week: $34.93. A bottom not seen since mid-June, it was less than $5 from the support the bears were likely to attack in the coming week.

But will oil be devoid of all support to sink again into the $20 region it last traded at in April? It's possible.

An alarming resurgence of Covid-19 cases raging across the United States, Europe and new lockdowns in France, Germany and Britain have dealt a crippling blow to demand forecasts for energy.

“The drag on oil’s demand from Covid is going to be prolonged,” said Kilduff. “I think the oil market tried to ignore the renewed threat of the pandemic for a while by buying into the narrative of vaccines and treatment under development.”

“There was a lot of hope that people could go back to flying, driving, cruising and everything else. That has gone out of the window in the last couple of weeks, with the rising rate of infections.”

Adding to those concerns, was the 4.3-million barrel rise in crude stockpiles reported by the Energy Information Administration on Wednesday for the week ended Oct. 23. The market had expected the EIA to call for a crude draw of 1 million barrels for that week. The crude build was the catalyst for a three-day selloff that wiped almost 10% off WTI prices.

Despite gasoline stockpiles for that same week falling by 892,000 barrels, versus a forecast build of nearly 2 million barrels, and diesel-led distillate inventories slumping 4.5 million barrels - more than twice expected - it’s the crude build that apparently played on every trader's mind.

Not helping was the growing uncertainty over the outcome of next week’s U.S. election where President Donald Trump faces challenger Joe Biden.

While polls indicate a Biden victory, with the Democrat having a wide lead over Republican Trump, the president has repeatedly questioned the electoral process and suggested that he will not accept a defeat.

Fears of a dragged-out election result and unrest on the streets were among factors that drove Wall Street’s Dow index down 6.5 percent for the month and 4.6 percent lower on the week, the most since March.

Another major concern of the markets: possibility that the next Covid-19 stimulus may not get approved until the political stalemate ends. While Inauguration Day for the winner of the presidential race is January 20, the stimulus process could get stretched if the winning side doesn’t have adequate votes in Congress and Senate.

So will all these undercurrents be enough to drag WTI below $30 next week?

Craig Erlam, analyst for New York-based OANDA, thinks the OPEC+ alliance will have a major in allowing that or preventing it.

OPEC+ is made up of 13 members of the Saudi-led Organization of the Organization of the Petroleum Exporting Countries and 10 oil producing allies steered by Russia. Since May, the alliance has succeeded in keeping crude prices above or near $40 per barrel with production cuts.

The group had been hoping to roll back some of its cuts before the end of this year or the beginning of 2021. But that looks unlikely now with tanking demand for oil due to the coronavirus.

“The next full meeting of OPEC and its allies isn't until the end of November/start of December,” said Erlam. “Can they afford to wait that long? A move back towards $30 may force them to act sooner, in some form or another. A postponement of January's two million barrel increase may be enough for now.”

Point to note: WTI fell $4.06 over the five sessions of the just-ended week - or an average of 81 cents per day. If the market slides at the same pace next week, it may still not be enough to break the $30 support.

But if the pessimism gets any worse - especially if there are multiple city lockdowns over Covid-19 outbreaks, post-election troubles, another set of bad inventory data from the EIA or a major stock market crash - the support may be broken by Wednesday itself.

Good luck in the week ahead, everyone.

Energy Weekly Review

Oil prices fell for a third straight day on Friday, heading for their worst month since March, as fresh curbs placed on business and people in France and Germany to curb the spread of the coronavirus led to fears of wider lockdowns in Europe and elsewhere.

Aside from the slump on WTI, London-traded Brent crude, the global benchmark for oil, registered a final trade of $37.89 per barrel, after ending the official session down 22 cents, or 0.6%, at $37.94.

Brent also posted a weekly loss of 10.3% and was down 8.5% for October.

“Halloween’s knocking on our doors, and it’s sure scary out there on both the oil and Covid fronts,” Again Capital’s Kilduff said.

The United States set yet another Covid-19 record on Friday, with more than 100,000 cases reported.

The U.S. as a whole has logged more than 9 million coronavirus cases and almost 230,000 deaths from the virus.

In New Jersey, Governor Phil Murphy said curfew was possible after the state neighboring former Covid-19 hotspot New York reported 2,089 new coronavirus cases, its highest in nearly six months.

In France, President Emmanuel Macron ordered people to stay in their homes except for essential activities like buying food or getting medical care, Reuters reported. This follows the implementation of nightly curfews in several metropolitan areas, including Paris, as well as an order earlier this month to close bars and implement strict protocols on restaurants in the capital city.

Neighboring Germany has ordered non-essential services like restaurants and bars to be shut for at least a month while fellow EU nations like Italy and Spain have scaled back openings as well.

Ireland and the UK have implemented restrictions to stem the spread of the virus as well.

The measures came as Europe reported 1.3 million new cases in the past seven days as of Tuesday, Reuters reported, citing data from the World Health Organization. Europe also reported more than 11,700 deaths, a 37% increase from the week before.

Energy Calendar Ahead

Monday, Nov 2

Private Cushing stockpile estimates

Tuesday, Nov 3

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Nov 4

EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories

Thursday, Nov 5

EIA weekly report on natural gas storage

Friday, Nov 6

Baker Hughes weekly survey on U.S. oil rigs

Precious Metals Weekly Review

Gold prices rose Friday, appearing poised to return to the key $1,900 level, as the safe haven crowd leveraged on uncertainty over the Nov. 3 U.S. election and that the winner will attempt to undertake a new major Covid-19 stimulus for the economy.

New York-traded gold for December delivery settled at $1,879.90, up $11.90, or 0.6% on the day. For the month, however, the benchmark U.S. gold contract was down 1.3%, accounting for losses occurring mostly in mid-October as a surge in risk appetite then had weighed on safe-havens.

Spot gold, which reflects real-time trades in bullion, last traded at $1,879.01, up $11.15, or 0.6%. For the week, spot gold was down 1.2%, while for the month, it fell 0.4%.

“Haven buying is expected to increase in the coming days,” Halley, the analyst at OANDA in New York, said, adding that gold could try and get over the $1,900 level next week on that momentum. “It should be enough to at least, temporarily, stop the rot until the U.S. election passes.”

Gold is a hedge against fiscal expansion and political uncertainty and typically rises in such circumstances.

Democrats, who control Congress, reached agreement with the Trump administration in March to pass the Coronavirus Aid, Relief and Economic Security (CARES) stimulus, dispensing roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid for qualifying citizens and residents.

Since then, the two sides have been locked in a stalemate on a successive relief plan to CARES. The dispute has basically been over the size of the next stimulus as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid.

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