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Energy & precious metals – weekly review and outlook

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Federal Reserve boss Powell and his colleagues will need it to see if inflation indeed slows meaningfully if the central bank decides on its first rate hike pause in 18 months.

Meanwhile, at OPEC, Abdulaziz will require more patience than possibly anyone at the Fed as the oil cartel saw another loss in crude prices at the end of last week despite a highly-publicized Saudi output cut.

The Fed’s June policy-making on Wednesday is expected to vote for a break from a rate hike campaign that started 15 months ago – even as the central bank confronts a U.S. economy that’s resilient and feeding inflation despite persistent talk of recession.

Bloomberg provided a snapshot of analysts’ thoughts to see divided markets – and the Fed itself was on a stay in rates:

“Those who prefer to skip a hike in June want to wait and see – given the long and variable lags of monetary policy – how 500 basis points of rate hikes to date are cooling the economy. More hawkish members are convinced rates aren’t yet restrictive enough, and the Fed shouldn’t risk falling behind the curve. We see a ‘hawkish skip’ as a way to maintain unanimity on the committee.”

The U.S. Consumer Price Index hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4.9% per annum in April, for its slowest expansion since October 2021. The Fed’s favorite price indicator, the Personal Consumption Expenditures, or PCE, Index, meanwhile, grew by 4.4% in April. Both the CPI and PCE are, however, still expanding at more than twice the Fed’s 2% per annum target for inflation.

Traders now have their eyes on the May CPI reading due Tuesday, a day before the Fed decision.

On the OPEC+front, crude prices finished Friday’s trading even lower than before last weekend’s meeting of the world’s top oil producers, where Saudi Arabia tried to “surprise” the market with another production cut.

That surprise is in inverted commas because many market watchers had already appeared to know that Minister Abdulaziz bin Salman and his Saud contingent would announce a unilateral output cut if there was no willingness by the rest to put up one.

The million-barrel cut that Abdulaziz tried to cutely label as a “Saudi lollipop” couldn’t sustain its sweetness beyond a couple of days.

After a fleeting pop of nearly 3% on Sunday and another 1% rebound on Wednesday, crude prices had fallen most this week.

The downside was distorted partly by a false report from a Middle East news portal on Thursday about a U.S.-Iran nuclear deal that could legitimately channel some sanctioned oil from Tehran to the market.

“It’s been a volatile week for oil prices, starting with the spike on the back of Saudi Arabia’s one million barrel production cut and ending with the US and Iran denying a temporary nuclear deal that saw prices plunge on Thursday,” said Craig Erlam, analyst at online trading platform OANDA. “These are very jittery markets against the backdrop of a deteriorating economic outlook.”

Erlam also noted that the Saudi production cut had little impact on the eventual price of oil.

With its latest maneuver on output, Saudi Arabia is effectively pledging to remove some 2.5M barrels per day from its production since October, versus a normal run of 11.5M barrels. The Saudi move came after its 12 partners in OPEC, or the Organization of the Petroleum Exporting Countries, and 10 other allies, including Russia, in the OPEC+ alliance decided to stay pat on production.

Reuters reported on Friday that the Saudis appeared to have caught those in OPEC+ unawares with their move. But almost all traders contacted by Investing.com seemed to have guessed the move, more because of Abdulaziz’s rabid obsession in trying to triumph against short-sellers in the market with his so-called production surprises that were losing their impact with each attempt of his.

“He’s fast becoming the court jester of OPEC with his dares against speculators,” said John Kilduff, partner at New York energy hedge fund Again Capital. “Instead of behaving in a dignified way appropriate for the head of OPEC+, he’s acting like a street brawler. These production cuts would have so much more impact if done sparingly, or even quietly. Let the data speak for itself. You always have your ‘gotcha’ moment with the market then.”

Erlam of OANDA agreed. “The Saudis are clearly not on the same page as their allies and are seemingly far more price obsessed,” the analyst said. “They won some concessions from (price projections for) 2024 but that’s a long time away and much can and probably will change in that time.”

The Saudi obsession with getting the market its way was reinforced by a Washington Post report on Friday that suggested that Crown Prince and king-in-waiting Mohammed bin Salman planned to hurt America in a big way if the Biden administration had retaliated against the kingdom’s deep oil production cuts that began eight months ago. The Post’s story was based on information embedded in dozens of highly-classified documents leaked online under a dossier called the ‘Discord Leaks’.

In what might give oil bulls a frisson of hope, the U.S. Department of Energy, or DoE, announced on Friday it has committed to buy approximately 6 million barrels of crude oil thus far to replenish the Strategic Petroleum Reserve, or SPR, which has seen draws of about 200 million barrels over the past year and a half.

A DoE statement said it was undertaking the “purchase of 3 million barrels and new solicitation for purchase of 3 million additional barrels [that] advances efforts to replenish the reserve at a good deal for American taxpayers, maintain the SPR’s operational readiness, and protect the nation’s energy security.”

Ten companies submitted 30 proposals in all to supply the first tranche of 3 million barrels, and five were successful, the DoE said.

“This purchase has been fully subscribed, and the contracts were awarded to five companies,” the statement said. “These 3 million barrels are being purchased for an average price of about $73 per barrel, lower than the average of about $95 per barrel that SPR crude was sold for in 2022, securing a good deal for taxpayers.”

The first tranche of oil, when ready for shipment, will be delivered to the Big Hill SPR storage site between August 1-31.

Despite the seemingly bullish element of the announcement, Anas Alhajji, a widely-followed energy market commentator on Twitter, said: “Oil bulls must realize that, if all stars line up for the Biden administration to refill the SPR with 180 million barrels, it needs about a year and half. If you do not know this, time to wake up!”

Oil: Market Settlements and Activity

New York-traded West Texas Intermediate, or WTI, crude ended Friday’s session at $70.35 – down $0.94, or 1.32%, on the day. It plunged to as low as $69.09 earlier, breaking the key $70 support.

London-traded Brent crude settled Friday’s session at $75.04 – down 92 cents, or 1.2%, on the day. Brent’s session low was $73.61, breaking its $75 support.

Oil: WTI Technical Outlook

The U.S. crude benchmark is expected to bounce around in the $75 to $67 region in the coming week, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“We expect sideways moves within the broader range of the Weekly Middle Bollinger Band of $74.90 as the resistance zone and the 200-week SMA, or Simple Moving Average of $67.25, as the horizontal support zone,” said Dixit.

He added that the Weekly Stochastics reading at 32/39 indicated a lack of bullish momentum.

Gold: Market Settlements and Activity

Gold was headed for a second straight weekly gain on Friday, posting its third rise in four days, amid bets the Federal Reserve will pause its rate hike cycle for the first time in 18 months.

The front-month gold contract on New York’s Comex settled at $1975.90 an ounce, down $2.70, or 0.14%, on the day. For the week, it was up 0.4%, about the same as the previous week.

The spot price of gold, which reflects physical trades in bullion and is more closely followed than futures by some traders, settled at $1,960.97, down $4.65, or 0.2% on the day. For the week, spot gold was up 0.7%, adding to the previous week’s near-flat close.

Bets for a Fed rate pause grew on Friday despite higher weekly unemployment claims among Americans.

According to Investing.com’s Fed Rate Monitor Tool, there is a 70.1% chance that the central bank will stand down from a rate hike when its policy-makers sit on June 14.

Ed Moya, analyst at online trading platform OANDA, said gold’s choppiness in recent weeks was due to a lack of conviction over the economy that hadn’t helped tip the market’s balance either way.

Tuesday’s CPI reading for May could “ultimately determine whether gold breaks higher once more with potential record high ambitions or continues to correct lower”, Moya added.

Gold: Spot Price Outlook

Thus far, gold has been showing a rebound from the horizontal support base formed between $1,932 and $1,942, said SKCharting’s Dixit.

“A rebound towards $1,973 remains within the boundaries of previous week’s high of $1,983,” Dixit said.

Clearing through the $1,975-$1,978 initial resistance zone will set stage for a retest of the swing high of $1,983, and on strong acceptance above this zone, resumption of an uptrend targeting $2,006 can be followed by the next Fibonacci level $2,015.”

On the flip side, a sustained break below 100-Day SMA of $1,937 will eventually extend the drop to $1,913-$1,910, Dixit said.

“Gold bears may be preparing for repositioning their shorts from the higher zone of $2,006-$2,015 for a better risk-vs-reward ratio eyeing for $1,910.”

Natural gas: Market Settlements and Activity

Natural gas futures limped in with a daily gain and a small weekly loss as market participants look beyond the first injection of above 100 billion cubic feet, or bcf, in the current storage season for the fuel in anticipation of near-term demand.

The front-month gas contract on the New York Mercantile Exchange’s Henry Hub registered a final post-settlement trade of $2.262 per mmBtu, or million metric British thermal units, after officially settling Friday’s session at $2.25, down 9.8 cents, or 4.2% on the day. For the week, the contract finished up 9 cents, or 4%, after the 15.6% plunge in the prior week.

“The second half of June into early July suggests that consistent heat isn’t too far off into the future and once that heat materializes demand will rebound,” analysts at Houston-based energy markets advisory Gelber & Associates said in a note.

The market appears to be starting to price this in and further bullish support may materialize, the Gelber note said.

The weekly rebound came after the Energy Information Administration, or EIA, reported a build of 104 billion cubic feet, or bcf, for gas inventories after the previous week’s 110 bcf.

With the latest stockpile increase, the EIA reported that total gas in underground caverns in the United States stood at 2.55 trillion cubic feet, or tcf – up 28.3 % from the year-ago level of 1.988 tcf and 16.1% higher than the five-year average of 2.197 tcf.

Just two weeks ago, Henry Hub’s benchmark gas contract hovered at 11-week highs of around $2.70, breaking out from the tight confines of mid-$2 pricing on the notion that the market may finally be turning the corner on fundamentals despite its oversupplied state.

But in recent days, it fell back to under $2.50, which has proven again to be a formidable barrier for gas bulls.

Natural gas: Price Outlook

Natural gas has to hold above $2.03 to avoid another plunge to sub-$2 levels, Dixit of SKCharting said.

“Gas bulls don’t appear ready yet to mark a bullish rebound, with the week-long price action lacking any significant moves, except for a pause in decline,” Dixit added.

“Sustainability below $2.27 indicates chances of a further consolidation towards the $2.13 support. Any sustained break below that risks a drop to $2.03, followed by a reach for the $1.944 horizontal support zone.”

He said the 100-Day SMA of $2.40 held the key for upward mobility towards the resistance zone set by the 5-month EMA, or Exponential Moving Average, of $2.67, which is closely followed by a swing high of $2.685.

Commodities

Natural gas prices outlook for 2025

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Investing.com — The outlook for prices in 2025 remains cautiously optimistic, influenced by a mix of global demand trends, supply-side constraints, and weather-driven uncertainties. 

As per analysts at BofA Securities, U.S. Henry Hub prices are expected to average $3.33/MMBtu for the year, marking a rebound from the low levels seen throughout much of 2024.

Natural gas prices in 2024 were characterized by subdued trading, largely oscillating between $2 and $3/MMBtu, making it the weakest year since the pandemic-induced slump in 2020. 

This price environment persisted despite record domestic demand, which averaged over 78 billion cubic feet per day (Bcf/d), buoyed by increases in power generation needs and continued industrial activity. 

However, warm weather conditions during the 2023–24 winter suppressed residential and commercial heating demand, contributing to the overall price weakness.

Looking ahead, several factors are poised to tighten the natural gas market and elevate prices in 2025. 

A key driver is the anticipated rise in liquefied natural gas (LNG) exports as new facilities, including the Plaquemines and Corpus Christi Stage 3 projects, come online. 

These additions are expected to significantly boost U.S. feedgas demand, adding strain to domestic supply and lifting prices. 

The ongoing growth in exports to Mexico via pipeline, which hit record levels in 2024, further underscores the international pull on U.S. gas.

On the domestic front, production constraints could play a pivotal role in shaping the price trajectory. 

While U.S. dry gas production remains historically robust, averaging around 101 Bcf/d in 2024, capital discipline among exploration and production companies suggests a limited ability to rapidly scale output in response to higher prices. 

Producers have strategically withheld volumes, awaiting a more favorable pricing environment. If supply fails to match the anticipated uptick in demand, analysts warn of potential upward repricing in the market.

Weather patterns remain a wildcard. Forecasts suggest that the 2024–25 winter could be 2°F colder than the previous year, potentially driving an additional 500 Bcf of seasonal demand. 

However, should warmer-than-expected temperatures materialize, the opposite effect could dampen price gains. Historically, colder winters have correlated with significant price spikes, reflecting the market’s sensitivity to heating demand.

The structural shift in the U.S. power generation mix also supports a bullish case for natural gas. Ongoing retirements of coal-fired power plants, coupled with the rise of renewable energy, have entrenched natural gas as a critical bridge fuel. 

Even as wind and solar capacity expand, natural gas is expected to fill gaps in generation during periods of low renewable output, further solidifying its role in the energy transition.

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Trump picks Brooke Rollins to be agriculture secretary

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WASHINGTON (Reuters) -U.S. President-elect Donald Trump has chosen Brooke Rollins (NYSE:), president of the America First Policy Institute, to be agriculture secretary.

“As our next Secretary of Agriculture, Brooke will spearhead the effort to protect American Farmers, who are truly the backbone of our Country,” Trump said in a statement.

If confirmed by the Senate, Rollins would lead a 100,000-person agency with offices in every county in the country, whose remit includes farm and nutrition programs, forestry, home and farm lending, food safety, rural development, agricultural research, trade and more. It had a budget of $437.2 billion in 2024.

The nominee’s agenda would carry implications for American diets and wallets, both urban and rural. Department of Agriculture officials and staff negotiate trade deals, guide dietary recommendations, inspect meat, fight wildfires and support rural broadband, among other activities.

“Brooke’s commitment to support the American Farmer, defense of American Food Self-Sufficiency, and the restoration of Agriculture-dependent American Small Towns is second to none,” Trump said in the statement.

The America First Policy Institute is a right-leaning think tank whose personnel have worked closely with Trump’s campaign to help shape policy for his incoming administration. She chaired the Domestic Policy Council during Trump’s first term.

As agriculture secretary, Rollins would advise the administration on how and whether to implement clean fuel tax credits for biofuels at a time when the sector is hoping to grow through the production of sustainable aviation fuel.

The nominee would also guide next year’s renegotiation of the U.S.-Mexico-Canada trade deal, in the shadow of disputes over Mexico’s attempt to bar imports of genetically modified corn and Canada’s dairy import quotas.

© Reuters. Brooke Rollins, President and CEO of the America First Policy Institute speaks during a rally for Republican presidential nominee and former U.S. President Donald Trump at Madison Square Garden, in New York, U.S., October 27, 2024. REUTERS/Andrew Kelly/File Photo

Trump has said he again plans to institute sweeping tariffs that are likely to affect the farm sector.

He was considering offering the role to former U.S. Senator Kelly Loeffler, a staunch ally whom he chose to co-chair his inaugural committee, CNN reported on Friday.

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Commodities

Citi simulates an increase of global oil prices to $120/bbl. Here’s what happens

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Investing.cm — Citi Research has simulated the effects of a hypothetical oil price surge to $120 per barrel, a scenario reflecting potential geopolitical tensions, particularly in the Middle East. 

As per Citi, such a price hike would result in a major but temporary economic disruption, with global output losses peaking at around 0.4% relative to the baseline forecast. 

While the impact diminishes over time as oil prices gradually normalize, the economic ripples are uneven across regions, flagging varying levels of resilience and policy responses.

The simulated price increase triggers a contraction in global economic output, primarily driven by higher energy costs reducing disposable incomes and corporate profit margins. 

The global output loss, though substantial at the onset, is projected to stabilize between 0.3% and 0.4% before fading as oil prices return to baseline forecasts.

The United States shows a more muted immediate output loss compared to the Euro Area or China. 

This disparity is partly attributed to the U.S.’s status as a leading oil producer, which cushions the domestic economy through wealth effects, such as stock market boosts from energy sector gains. 

However, the U.S. advantage is short-lived; tighter monetary policies to counteract inflation lead to delayed negative impacts on output.

Headline inflation globally is expected to spike by approximately two percentage points, with the U.S. experiencing a slightly more pronounced increase. 

The relatively lower taxation of energy products in the U.S. amplifies the pass-through of oil price shocks to consumers compared to Europe, where higher energy taxes buffer the direct impact.

Central bank responses diverge across regions. In the U.S., where inflation impacts are more acute, the Federal Reserve’s reaction function—based on the Taylor rule—leads to an initial tightening of monetary policy. This contrasts with more subdued policy changes in the Euro Area and China, where central banks are less aggressive in responding to the transient inflation spike.

Citi’s analysts frame this scenario within the context of ongoing geopolitical volatility, particularly in the Middle East. The model assumes a supply disruption of 2-3 million barrels per day over several months, underscoring the precariousness of energy markets to geopolitical shocks.

The report flags several broader implications. For policymakers, the challenge lies in balancing short-term inflation control with the need to cushion economic output. 

For businesses and consumers, a price hike of this magnitude underscores the importance of energy cost management and diversification strategies. 

Finally, the analysts  cautions that the simulation’s results may understate risks if structural changes, such as the U.S.’s evolving role as an energy exporter, are not fully captured in the model.

While the simulation reflects a temporary shock, its findings reinforce the need for resilience in energy policies and monetary frameworks. Whether or not such a scenario materializes, Citi’s analysis provides a window into the complex interplay of economics, energy, and geopolitics in shaping global economic outcomes.

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