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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

Labor dispute stops Canadian canola oil, forestry exports from West Coast

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By Ed White

(Reuters) – Canada’s exports of canola oil and forest products from West Coast ports have halted due to a labor dispute, producers said on Thursday.

The stoppage, which started on Monday (NASDAQ:), involves limited strike action by the longshore foremen and a full lockout of Local 514 of the International Longshore and Warehouse Union by the B.C. Maritime Employers Association.

While bulk grain shipments are exempt from the British Columbia action, canola oil and forestry products are not covered by that federal labor code provision and are not being loaded onto ships at Pacific ports.

Based on the market price of canola oil, each day without shipments represents C$4 million in lost revenue, said Chris Vervaet, the executive director of the Canadian Oilseed Processors Association, which says it represents about 95% of Canada’s canola and soybean crush capacity.

“We really implore the government to get involved and really help both sides to a resolution.”

Federal Labor Minister Steven MacKinnon has said both sides have a responsibility to reach an agreement. On Thursday he criticized the lack of apparent progress between the union and employers as well as a smaller shutdown affecting some container traffic at the Port of Montreal.

“Both sets of talks are progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved,” said MacKinnon in a post on social media platform X.

Vervaet said Canada exports about one million metric tons of canola oil through the Port of Vancouver yearly.

Canada is the world’s top exporter of the oilseed, and canola oil is the most valuable part of the crop.

© Reuters. International Longshore and Warehouse Union Local 514 members and supporters march to the Port of Vancouver amid a labour dispute, in Vancouver, British Columbia, Canada November 8, 2024. REUTERS/Jennifer Gauthier

The Forest Products Association of Canada also called for federal government intervention.

Wood, pulp, paper and byproduct shipments by the organization’s members make up about 17% of Vancouver’s container exports and 14% of Montreal’s.

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Oil slips as investors digest US election fallout

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By Alex Lawler

LONDON (Reuters) – Oil slipped on Thursday, extending a sell-off triggered by the U.S. presidential election, as a strong dollar and lower crude imports in China outweighed supply risks from a Trump presidency and output cuts caused by Hurricane Rafael.

Donald Trump’s election win initially triggered a sell-off that pushed oil down more than $2 as the dollar rallied. But crude prices later pared losses to settle at a less than 1% decline by the end of Wednesday’s session.

futures fell 63 cents, or 0.8%, to $74.29 a barrel by 1253 GMT on Thursday. U.S. West Texas Intermediate (WTI) crude lost 73 cents, or 1%, to $70.96.

Downside factors include a strong dollar and sluggish demand, while upside pressures come from potentially increased sanctions on Iran and Venezuela under Trump, as well as conflict in the Middle East, said Saxo Bank analyst Ole Hansen.

“Some of these potential drivers will have no impact in the foreseeable future, but they all add up to the current narrative leading to rangebound trading,” he said.

“Absent any major geopolitical escalation, the short-term outlook leans toward downside risk in my opinion.”

The dollar held near four-month highs on Thursday as investors prepared for several central bank decisions, including from the U.S. Federal Reserve. A strong dollar makes oil more expensive for other currency holders and tends to weigh on prices.

“Historically, Trump’s policies have been pro-business, which likely supports overall economic growth and increases demand for fuel,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. “However, any interference in the Fed’s easing policies could lead to further challenges for the oil market.”

Further downward pressure came from data showing that crude oil imports in China fell 9% in October – the sixth consecutive month showing a year-on-year decline – as well as from a rise in inventories.

Trump is expected to reimpose his “maximum pressure policy” of sanctions on Iranian oil exports. That could cut supply by as much as 1 million barrels per day (bpd), according to Energy Aspects estimates.

© Reuters. FILE PHOTO: A pump jack operates in an oil field in Midland, Texas U.S. August 22, 2018. Picture taken August 22, 2018. REUTERS/Nick Oxford/File Photo

In his first term, Trump also put in place harsher sanctions on Venezuelan oil. Those measures were briefly rolled back by the Biden administration but later reinstated.

Actual, rather than feared, supply cuts also lent support. In the U.S. Gulf of Mexico, about 17% of crude output or 304,418 bpd has been shut because of Hurricane Rafael, the U.S. Bureau of Safety and Environmental Enforcement said.

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Commodity prices fall after Donald Trump elected US President

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By Naveen Thukral, Emily Chow and Nina Chestney

SINGAPORE/LONDON (Reuters) -Commodities from oil and gas to metals and grains dropped on Wednesday as the dollar rallied and victory for Republican Donald Trump in the U.S. presidential election stoked concerns about tariffs and economic growth.

Trump recaptured the White House by securing more than the 270 Electoral College votes needed to win the presidency, following a campaign of dark rhetoric that deepened the polarization in the country.

Oil prices fell by more than 1% on pressure from the U.S. dollar rally, which was set for its biggest one-day rise since March 2023 against major peers. [USD/]

Investors believe Trump’s presidency will bolster the dollar as interest rates may need to remain high to combat inflation that would stem from new tariffs.

A stronger U.S. dollar makes greenback-denominated commodities such as oil more expensive for holders of other currencies.

Precious metals also fell, with gold sliding to a near three-week low, while lost more than 2%, making it the worst performer of the base metals complex.

“Gold will be torn between the risk of rising inflation, potentially slowing the pace of U.S. rate cuts, as tariffs are rolled out and continued demand for safe haven assets,” Ole Hansen, head of commodity strategy at Saxo Bank, said.

Commodity prices started to fall overnight as traders started to price in the likelihood of a Trump win.

“This scenario is expected to bring about the promised tariffs on imported goods, particularly targeting China, potentially triggering a new wave of trade tensions and economic disruptions,” Hansen added.

However, Trump could renew sanctions on Iran and Venezuela, removing oil barrels from the market, which would be bullish, said UBS analyst Giovanni Staunovo. Iran exports about 1.3 million barrels per day.

Benchmark European gas prices also fell by nearly 3% amid concerns about gas supplies and Trump’s stance on the Middle East conflict and Russia-Ukraine war.

China’s industrial metals and steel industries could face headwinds as Trump has pledged to impose blanket 60% tariffs on Chinese goods to boost U.S. manufacturing.

“China’s steel prices will undertake more downward pressure if Trump wins the election, and domestic steelmakers may face even more severe losses,” said Ge Xin, deputy director at Lange Steel Research Centre. 

“This is because Trump will be more aggressive in terms of measures against China.”

The copper market was pricing in the possible roll-back of U.S. electrification initiatives, including subsidies for electric vehicles, which would dampen demand.

Agricultural commodities were also hit, with soybean futures in particular trading lower. Wheat and corn were seen as less exposed to renewed trade tensions with China.

A stronger dollar makes U.S. grain more expensive overseas, while tariffs proposed by Trump could disrupt U.S. agricultural trade, with soybeans particularly reliant on sales to leading importer China.

© Reuters. FILE PHOTO: Soybean plants begin to show signs of growth at Mark Tuttle's soy farm in Somonauk, Illinois, U.S., May 30, 2024.  REUTERS/Jim Vondruska/File Photo

There are also fears that China could respond with retaliatory measures, potentially reducing U.S. exports of key crops and creating downward pressure on prices.

Shares in European clean energy companies also fell as Trump has vowed to scrap offshore wind projects through an executive order on his first day in office.

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