Crude oil prices rallied higher on Wednesday morning, at the latter part of Asia’s trading session. The recent upside in crude oil prices was triggered by the American Petroleum Institute (API) announcing a larger-than-expected plunge in U.S oil stockpiles.
Brent crude futures gained 0.81% to trade at $45.95 by (5:09 AM GMT) and WTI futures gained 0.84% to trade at $43.12
What you must know: American Petroleum Institute recently reported a 6.360 million-barrel draw for the week ended August 28, much larger than the forecasted 1.950 million-barrel prepared by Investing.com, and the previous week’s 4.524 million-barrel draw.
Crude oil traders will now fix their eyes on U.S. Energy Information Administration’s figures scheduled to be released later today.
In addition, another macro pushing crude oil prices above the $45 price level is the recent better-than-expected U.S. manufacturing activity data released yesterday.
August’s ISM Manufacturing Purchasing Managers Index (PMI) rose to 56, beating July’s reading of 54.2 and the 54.5 forecasts. A rise in new orders saw the index climb to its highest level in more than a year.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to the source, spoke on prevailing macros, affecting the prices of the West Texas Intermediate benchmark. He said:
“In early Asia, WTI is trading off Monday’s highs but is still hugging $43 per barrel, finding support from decade high PMI prints in China.
“However, near-term headwinds from the uncertain macro environment with Fed Governor Brainard striking a pessimistic tone on the economy overnight, and rising production are likely to limit the upside.
And these issues could lead to a correction lower in the coming weeks, even more so if the mega commodity reflation trade runs out of steam as the old dog – the US dollar doesn’t look like it is going to roll over just yet.
“Still, positive medium and longer-term supply-and-demand trends supported further along the curve suggest WTI should remain comfortably above the $40-41 level.”
Crude oil prices continue to climb up amid signs of gradual demand improvement, albeit in on low volatility conditions.
Oil prices plunge on fears OPEC+ may increase Oil supply
Oil traders are becoming wary that OPEC+ will increase oil output and further distort the energy demand/supply dynamics.
Oil prices lost more than a percent at the second trading session of the week. Oil traders are virtually going to extend short on concern that OPEC may agree to increase global supply in a meeting this week and Chinese demand may be dropping.
At the time of writing this report, Brent crude dropped by 1.2%, to trade at $62.91 after losing 1.1% in the past day. U.S. West Texas Intermediate (WTI) crude dropped by 1.2%, to trade at$59.90 a barrel, having lost 1.4% on Monday.
Oil traders are becoming wary that OPEC and its allies, a group often referred to as OPEC+, will increase oil output and further distort the energy demand/supply dynamics.
The group meets is scheduled to hold on Thursday as discussions might include allowing as much as 1.5 million barrels per day of crude oil back into the market.
Stephen Innes, Chief Global Market Strategist at Axi in a note to our source explained why the OPEC+ meeting matters most to many oil traders.
“Constructive oil market fundamentals have blown slightly off course ahead of the OPEC + meeting on Thursday as oil prices took to the plunge pool overnight, with Brent back to the soft US$63 handle after trading as high as $66.82 only last Thursday.
“Commodities were mostly weak overnight as the dollar regained a bit of ground. OPEC+ will meet this Thursday, and expectations are that despite Saudi Arabia’s call for caution, most members will push for an increase in output,” Innes stated.
Bottom line: energy pundits expect the all-important meeting this week in being one of the most interesting oil meetings in Q1, with Saudi Arabia urging producers to remain “extremely cautious”.
Gold posts worst monthly decline since 2016, as U.S dollar keeps rising
The precious metal posted its worst monthly decline since 2016 as gold prices broke below the $1,750 support.
Gold has of late been under immense pressure, as the Dollar Index surged to a one-week high of 90.8. The safe-haven currency is an outright alternative to gold and typically pressures gold when it gains.
The precious metal posted its worst monthly decline since 2016 as gold prices broke below the $1,750 support at the last trading session of the week, following most commodities and global stocks lower for a second straight day as global investors readjusted their portfolios.
With Friday being the last trading session for the month of February, it wrapped up the month with a 6.6% decline, its worst since a 7.2% decline in November 2016.
Gold for April delivery lost about 2.6% to settle at $1,728.80 per ounce. It earlier plunged to $1,715.05, its lowest point since a June 8 bottom of $1,700.10.
For the week, the precious metal contract lost about 2.7% in value, following through with the previous week’s drop of 2.5%.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to our source, spoke on other prevailing macros weighing heavily on gold prices
“The rise in real yields has seen gold under pressure with everyone selling. Although positioning is cleaner, the overall market is still long, and ETF selling negatively affects the market on actual position clean out rather than just speculative sell-off. Which is more worryingly an early sign of a capitulation.”
Gold traders are not keen on going bullish, at least for the near term, on the bias that rising U.S Treasury yields see investors showing less interest in the yellow metal.
Gold maintains shine after advancing for two days
The bullion asset regained its lustre after a 2.2% drop recorded in the past week,
Gold stayed on course at the second trading session of the week after advancing for two days, as metal traders awaited testimony from U.S Fed Chief, Jerome Powell.
At the time of drafting this report, the bullion asset traded at $1,807.24 an ounce after rising 1.9% over two days.
The U.S Fed Chief’s semi-annual report at the U.S congress today and the next day will be monitored by metal traders for further policy guidance, and his assessment of the economic recovery at the world’s largest economy.
The bullion asset regained its lustre after a 2.2% drop recorded in the past week, as traders refocus on rising inflation expectations.
In an explanatory note to Our source, Stephen Innes, Chief Global Market Strategist at Axi, gave valuable insights on how the precious metal managed to stay above the $ 1,800-ounce price level.
“It was a strange world seeing the commodity locomotive racing at full steam, but gold left-back at the station. But correlations are looking more normal today after yesterday morning signal gold was trading slightly higher in delayed response to USD weakness. A weaker US dollar remains one of the primary lift-off balloons.
Gold built on Friday’s modest rally, clearing and holding above the USD1,800/oz level. USD weakness was likely the key factor behind gold’s recovery.”
What to expect: The U.S congress may vote on the US$1.9 trillion stimulus package in the coming days, which should hold gold’s appeal as inflation concerns and reflation appeal suggest gold is a good hedge.
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