Oil prices started the first trading week bullish. Oil bulls recouped some losses recorded at the previous session amid high hopes that OPEC+ will continue to limit output in order to curb fears on weaker soft demand, coupled with concerns that the COVID-19 pandemic seems to be out of control.
- At the early session in Asia, Brent Crude futures were up 1.1% and priced at $43.21 a barrel, while the U.S based oil contract, U.S. West Texas Intermediate crude, for December was priced at $40.66 a barrel – up by 1.32%.
Both oil benchmarks contracts ticked up by more than 8% last week on high hopes of a COVID-19 vaccine, coupled with strong reports from the Organization of the Petroleum Exporting Countries (OPEC) and their allies including Russia, that it will stick to lower output early next year in order to keep energy prices relatively attractive.
OPEC+, in present terms, has reduced oil output by about 7.7 million barrels per day, with a compliance rate seen at 101% in October, greatly attributed to the Saudi Energy Minister, nicknamed “Oil Sherriff” as he battles oil speculators and keeps wary over oil producers.
OPEC+ is scheduled to hold its ministerial committee this Tuesday, which could elaborate on changes to oil output quotas when all the ministers meet on Nov. 30 and Dec. 1.
What they are saying
With a well-detailed analysis on the black fossil market, Stephen Innes, Chief Global Market Strategist at Axi, in a note to Our source, spoke on the macros oil traders are riding on presently.
“All the while, oil prices are still riding the vaccine tailwinds supported by OPEC + backstops, as the two sturdy backstops are ruling out of the more worrying demand and price collapse scenarios.
“Last week traders speculated that the US could move into very rigid lockdowns over the holiday season, impacting road fuel demand over Thanksgiving and Christmas, so we are seeing some of those shorts give way at the open, as traders back some of those US lockdown worries and oil is climbing a bit.”
Oil traders are looking for the same trading patterns this week as last week, where optimism around key resistance levels quickly ebbs to pandemic realities. It is hard to escape the current virus realities when it comes to the prompt oil market prices.
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.