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Commodities

Energy & precious metals – weekly review and outlook

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Energy & precious metals - weekly review and outlook
© Reuters

Investing.com — The economy and geopolitics basically rule supply and demand of commodities. The economy dictates demand more than supply. Geopolitics, conversely, controls supply rather than demand. If what transpired in the just-ended week was economic worry depressing the price of oil, then you’re likely to get some of the opposite this week: geopolitics, in the form of the Israel-Hamas war, driving crude prices up.

How much higher? That’s something even the Saudis probably can’t answer at this moment.

Oil prices fell between 9% and 11% last week, depending whether it’s US crude or Brent you’re looking at. It was the biggest weekly slump since March and was deeper than any weekly rally over the past three months. It came as US Treasury yields at 16-year highs and a dollar at a 10-month peak pressured other currencies and economies while consumption of gasoline — the No. 1 fuel product in the United States — was at a seasonal low of 25 years. 

The week we are entering is quite a different one. Even without the Israel-Hamas war, the dollar could be one reason for recovery in commodities denominated in the currency, including oil. After reaching its highest level since November on Tuesday, the dollar slid for the remaining three days of last week. 

Sunil Kumar Dixit, a technical chartist for markets and regular collaborator with Investing.com, sees profit-taking in the coming week weighing further on the, which pits the US currency against six other majors, namely the , , , Swiss , Swedish and .

“The Dollar Index faced strong resistance at that 107.35 high and has started declining, with the 3 Black Crows formation on its daily chart,” said Dixit. “Immediate support is seen at 105.78 which is likely to be breached eventually,  exposing 23.6% fibonacci retracement zone 105.52.  The path of resistance is likely to shift to 106.50 -106.60.”  

“Subsequent weakness below 105.50 will extend decline to 104.70 and 104.35 followed by major support at 103.50 which aligns with 100-day SMA, or Simple Moving Average, as well as the 50% Fibonacci zone.”

That’s for the dollar. Now for the Israel-Hamas conflict, which threatens to redraw power stakes in the Middle East more forcefully than any singular event of the past 30 years.

As aforementioned, how deep an impact it would have on oil prices is not known. But with the showdown itself being in the super-sensitive zone which is central to oil production, an intelligent guess is that prices would be higher in the immediate days as the trade tries to figure out if supply would indeed be affected and to what extent.

In that analysis, all attention would be on Iran, which is tacitly behind Hamas at all times. 

Despite its weakened finances in recent years due to US sanctions, Iran remains the Middle East’s third largest economy, after Turkey and Saudi Arabia. More importantly, it is the world’s fifth largest oil producer. 

With the Israelis vowing commensurate response for one of the worst attacks ever on their soil, a counter engagement against Tehran, either unilaterally by Jerusalem, or with the combined might of the United States, could have ramifications for the oil trade.  

As Bloomberg’s oil columnist, Javier Blas, pointed out in the immediate hours after the Hamas attack, the most immediate impact could come if Israel concludes that Hamas acted on the instructions of Tehran. He referenced the 2019 attack on Saudi facilities, where a chunk of the country’s oil production capacity was taken out by Yemenis whom many suspect were guided from beginning to end by Iran.

“Even if Israel doesn’t immediately respond to Iran, the repercussions will likely affect Iranian oil production,” Blas wrote. “Since late 2022, Washington has turned a blind eye to surging Iranian oil exports, bypassing American sanctions. The priority in Washington was an informal détente with Tehran.” 

“As a result, Iranian oil output has surged nearly 700,000 barrels a day this year – the second-largest source of incremental supply in 2023, behind only US shale. The White House is now likely to enforce the sanctions.”

But Blas also concedes that since Russia will benefit from any Middle East oil crisis, the United States might proceed more carefully with all its options.

“If Washington enforces sanctions against Iran, it could create space for Russia’s own sanctioned barrels to both win market share and achieve higher prices. One of the reasons why the White House turned a blind eye on Iranian oil exports is because it hurt Russia.”

“In turn, Venezuela could also benefit, with the White House relaxing sanctions to ease market pressure,” Blas added, referring to another country which the United States has complicated ties with, due to oil.

Blas also makes another interesting point related to oil supply. The crisis, though coming exactly 50 years after the Arab Oil Embargo, isn’t a repeat of that October 1973 crisis. Arab countries aren’t attacking Israel in unison, he points out. This time, Egypt, Jordan, Syria, Saudi Arabia and the rest of the Arab world are watching the events from the sidelines, not shaping them, he notes.

“The oil market itself doesn’t have any of the pre-October 1973 characteristics,” Blas adds. “Back then, oil demand was surging, and the world had exhausted all its spare production capacity. Today, consumption growth has moderated, and is likely to slow further as electric vehicles become a reality. In addition, Saudi Arabia and the United Arab Emirates have significant spare capacity that they use to curb prices – if they choose to do so.”

To me, the Saudis are another interesting dark horse in this puzzle. In ordinary times, when world oil supply is in a dire shortage, the Saudis will be the ones to rescue it, given their standing as the nation with the highest capacity to produce more. 

But the Saudis have become the main driver of the supply squeeze in oil now, carrying out some of the deepest production cuts ever in the history of the kingdom, ostensibly to get $100 or more for a barrel. They almost got there two weeks ago, when global crude benchmark Brent went above $97. Thus, the selloff in the just-ended week must have incensed the Saudis to no end and they are hardly likely to add even a barrel after this as relief to any new supply squeeze related to reprisals from this war.

Last but not least, President Joe Biden could again turn to the US oil reserve if the supply situation got too tight to the extent that prices shot way above $100, Blas said. Stockpiles in the US Strategic Petroleum Reserve are already at their lowest since the 1980s after the president released some 200 million barrels over the past two years to plug shortages which drove pump prices of gasoline to record highs of $5 last summer. “The reserve still has enough oil to deal with another crisis,” Blas said.

In conclusion, I’ll say that geopolitics tends to have an intense and outsized impact on anything, but its effect is also typically shorter and less pronounced than that caused by the economy. That’s why I said at the outset that while this war would most likely push crude prices up in the immediate term, it’s hard to predict how long that would be the case.

Oil: Market Settlements and Activity 

New York-traded West Texas Intermediate, or , crude for delivery in November posted a final trade of $82.81 a barrel, after officially settling at $82.79, up 48 cents, or 0.6%.

That was a rebound from the 8% slump of the past two sessions, although the US crude benchmark did make a fresh five-week low of $81.53 on the day.

London-traded for the most-active December contract had a last trade of $84.43, after officially settling at $84.57, up 54 cents, or 0.6%, returning to the green lane after also seeing a drop of some 8% between Wednesday and Thursday. 

Like WTI, the global crude benchmark printed a five week low in the latest session, falling to $83.50.

For the week, the US crude benchmark was down 9% while its UK peer fell 11%. That was the worst week since March for both.

Oil: WTI Technical Outlook

Following the previous week’s indecision after resistance at $95, WTI reacted to headwinds that sent it smashing through the 100-week SMA of $86.15 and reached $81.50, in close vicinity to the 50-week EMA, or Exponential Moving Average of $80.90.

“Break below this zone may cause some limited consolidation to weekly middle Bollinger Band $79.30,” Dixit said. “We, however, expect resumption of strong demand from the support zone as value buyers await in anticipation of an imminent new leg higher beyond the recent high of $95.”

Gold: Market Settlements and Activity 

While futures of gold on New York’s Comex, as well as the spot price of bullion traded globally, were up on the day, on a weekly basis both fell for a third week in a row, responding to the relentless selloff of late in bonds and the rally in the dollar. 

Gold’s most-active contract on New York’s Comex, December, did a final trade of $1,847 an ounce after officially settling Friday’s trading at $1845.20, up $13.40, or 0.7%. It hit a seven-month low of $1,823.55 earlier.

The spot price of gold, more closely watched by some traders than futures, settled $1,832.59, up $12.33, or 0.7%, on the day. hit a 7-month low of $1,810.47 earlier in the day.

Gold: Spot Price Outlook 

Dixit’s outlook: “Gold dropped to $1,810, below the 200 week SMA of $1,815 and triggered retail short covering in the wake of a weekend full of uncertainties. The rebound caused sharp recovery to $1,835 to close at 5 Day EMA of $1,832.

“RSI and Stochastics begin to turn north, hinting at strong rebound which immediately targets 4 Hour 50 EMA $1,846 and 100 Week SMA $1,855. Above this zone, the bullish rebound is expected to continue with targets $1,863-$1,869, followed by $1,881. Any correction to $1928-$1820 may be considered a buying opportunity.”

“Tensions erupted in the Israel vs Palestine conflict puts a geopolitical crisis on an explosive situation, which is certain to trigger panic demand for safe-haven buying in gold. The rally is likely to reach $1927 in a quick chase.”

Natural gas: Market Settlements and Activity 

Things are beginning to look up for the natural gas bull, after months and months of haplessness.

America’s favorite fuel for indoor heating and cooling reinforced its hold on $3 pricing on Friday as futures on the New York Mercantile Exchange’s Henry Hub scored double-digit gains for a second straight week. 

Turnaround in the prospects of gas, which prior to this was stuck at mid-$2 levels for most of the year, came as weather, demand and production synced in the positive to support higher pricing. 

Aiding the bull fervor was gas storage data showing a smallish build for last week, contrary to expectations for a larger one, as some lingering warmth before the advent of cooler fall temperatures led to more air-conditioning demand. 

The most-active on the New York Mercantile Exchange’s Henry Hub settled Friday’s trade at $3.33 per mmBtu, or million metric British thermal units, up 17 cents, or 5.4%, on the day. For the week, November gas gained 14%, adding to the prior week’s advance of 11%. 

This week’s rally in gas accelerated after the Energy Information Administration, or EIA, reported a build of just 86 billion cubic feet, or bcf, in storage of the fuel during the week ended Sept. 29, versus the 92 bcf expected by industry analysts tracked by Investing.com. In the prior week to Sept. 22, storage rose by 90 bcf.

Total gas in US storage was at 3.445 trillion cubic feet as of last week, up 11.6% from a year ago, the EIA said. Earlier this year, the storage was more than 20% up year-on-year. On a five-year basis (2018-2022), inventories were just 5.3% higher, down from double-digits earlier this year.

Natural gas: Price Outlook

Dixit’s outlook: “After 33 weeks of consolidation, of which 16 weeks have been spent above the weekly Middle Bollinger Band, natural gas futures finally made a strong breakout above the critical barrier of the 50-week EMA of $3.35. As long as $2.82 holds as support, continuation of the uptrend targets the 200-week SMA statically aligned with $3.77, followed by the next challenge at the psychological handle $4.”

Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about.

Commodities

Oil prices on track for positive week on OPEC hopes

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Investing.com– Oil prices edged higher Friday, on course for sharp weekly gains on hopes of supply remaining tight while demand picks up. 

At 08:00 ET (12:00 GMT), rose 0.6% to $83.28 a barrel, while gained 0.5% to $79.02 a barrel. 

Both benchmarks are on course for gains of over 4% for the week, potentially their best week in over two months. 

Oil heads for positive week after OPEC+ assurances

A bulk of crude’s gains this week came as prices rebounded from four-month lows, after the Organization of Petroleum Exporting Countries and allies (OPEC+) reiterated its commitment to keeping production low to support prices. 

OPEC+ had, during its June meeting, flagged the possibility of scaling back its 2.2 million barrels per day voluntary production cuts later this year- a signal that was received negatively by the crude markets. 

But the group then clarified that any increase in production was largely dependent on oil prices, which helped soothe concerns over higher supplies. 

The cartel also maintained its annual oil demand growth forecast in a , citing improved prospects from an eventual lowering in global interest rates. 

Putin lays out peace conditions

President Vladimir Putin said on Friday, on the eve of a peace conference in Switzerland to which Russia has not been invited, that his country would cease fire and enter peace talks if Ukraine dropped its NATO ambitions and withdrew its forces from four Ukrainian regions claimed by Moscow.

These conditions are wholly at odds with the terms demanded by Ukraine, with Kyiv stating that peace can only be based on a full withdrawal of Russian forces and the restoration of its territorial integrity.

The weekend summit in Switzerland, which will be attended by representatives of more than 90 nations and organisations, is expected to shy away from territorial issues and focus instead on matters such as food security and nuclear safety in Ukraine.

Demand concerns, oversupply fears still in play 

Despite positive signals from the OPEC+, other market indicators still presented some headwinds for oil markets.

U.S. inventories saw an unexpected build last week despite an expected pick-up in demand during the travel-heavy summer season. 

The International Energy Agency also lowered its demand growth for the year, and said it expected increased supply in non-OPEC nations, particularly the U.S., to cause a supply glut in the coming years.

Additionally, uncertainty exists over future Fed monetary policy, after the U.S. central bank cut its forecast for rate cuts this year to one, from three previously, while inflation data in the world’s largest energy consumer came in cooler than expected.

(Ambar Warrick contributed to this article.)

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Oil prices set for best week in four months on demand outlook

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By Robert Harvey

LONDON (Reuters) -Brent oil futures prices were steady on Friday and on course for their best week in more than four months after solid projections for crude oil and fuel demand.

futures were up 38 cents, or 0.46%, at $83.13 a barrel by 1210 GMT. West Texas Intermediate (WTI) futures gained 27 cents, or 0.34%, to $78.89.

Brent and the U.S. benchmark had gained almost 4.5% over the week. That would mark Brent’s highest weekly rise in percentage terms since the week to Feb. 9. For WTI, it was the biggest since the week to April 5.

Price support came from the Organization of Petroleum Exporting Countries (OPEC) this week after it stuck to a forecast for relatively strong growth in global oil demand for 2024 while Goldman Sachs projected solid U.S. fuel demand this summer.

The International Energy Agency, meanwhile, expects oil demand to peak by 2029, levelling off around 106 million barrels per day (bpd) towards the end of the decade, it said in a report on Wednesday.

However, this week’s price rally cooled somewhat after the U.S. Federal Reserve kept interest rates on hold, with the start of rate cuts unlikely before December.

“In view of the still uncertain economic outlook for the major economic regions, a further price increase is not to be expected for the time being,” said Commerzbank (ETR:) analyst Barbara Lambrecht.

Elsewhere, Russia pledged to meet its output obligations under the pact among the OPEC+ group of producers after saying it exceeded its quota in May.

“No matter how many times it promises to make up for poor compliance at a future date, the market just sees more oil and an agreement that might just possibly unravel,” said PVM analyst John Evans.

© Reuters. FILE PHOTO: A general view of a French oil Esso refinery by night in Fos-sur-Mer, France, May 13, 2024. REUTERS/Manon Cruz/File Photo

Market focus is also on Gaza ceasefire talks, which could alleviate concerns about potential disruption to oil supply from the region.

The U.S. is very concerned that hostilities on the Israel-Lebanon border could escalate, a senior U.S. official said, adding that specific security arrangements are needed for the area and a ceasefire in Gaza is not enough.

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High copper prices the new normal, likely to impact electric cars, expert warns

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Investing.com – Following a surge in prices early in May, markets are now seeing a moderated correction. Amid speculation about future demand increases and supply issues, experts anticipate that elevated copper prices will become the norm in the long term, despite potential short-term fluctuations. Rodrigo Scolaro, an economist at Gep Costdrivers, shared this view in an interview with Investing.com Brazil.

In this context, the electric vehicle sector faces significant challenges due to rising costs of key metals like copper, as noted by the expert. Nickel and lithium prices may also rise, further impacting industry costs.

Factors contributing to the recent copper price hike include mining disruptions in Chile, Peru, Panama, and Zambia, which triggered the price surge. Political developments could sustain these elevated levels, particularly as China’s supply-demand balance is expected to remain in deficit in the coming years.

Check out the reasons in the full interview:

Investing.com – Copper, crucial for the electric vehicle sector, nears historic highs. What are the drivers behind this price appreciation?

Rodrigo Scolaro – When we talk about the copper market, we have two sides to look at: the actual production of ore and the production of refined copper, which would be the more finished product, which is the product that is actually traded on international exchanges.

For a few years now, we have been seeing some problems in mining. Copper mining is mainly in the Latin American market, the largest producers are Chile and Peru, but we also have production in several other countries. We saw a wave of political instability and environmental problems in Chile and Peru that harmed mining in these countries, which ended up reducing the supply of ore on the international market.

And, more recently, as the last straw, we had the closure of a very important mine in Panama, which was the largest copper mine in the country, which precisely affected the supply of international copper ore.

On the other hand, we have the issue of refining. China is the main refiner and, as there was less ore on the market, the ore was becoming more expensive, and this was putting pressure on the margins of Chinese refiners. They were earning less and less for refinement.

Discussions among Chinese companies have increased about a possible reduction in refining, perhaps a cut, greater control. And some Chinese data indicates that some type of cut has already started.

As the ore is in trouble, with the closure of the Panama mine and China discussing this refining issue, there was this uncertainty in the market that the supply of copper is not enough to meet the demand, all associated with this issue of transition to cars electricity and with the prospect that the demand for copper will grow very soon.

So, with this fear, prices started to rise. So we have some practical numbers, but it is also a very speculative movement. When we talk about refining demand, we saw some positive data from the Chinese economy, which is a major demander of refined copper. But nowadays, the main source of demand for refined copper is not electric cars yet. The perspective is that it will be a growing market and perhaps one of the main sources of demand. But today, it is the Chinese construction industry, and it is experiencing a lot of demand problems and has seen declines in the real estate sector.

The rise in copper is, therefore, still somewhat speculative, it is much more a prospect of an increase in demand than an actual increase in demand observed. Now in May it reached historic highs.

Inv.com – Do you expect this appreciation to continue? What factors might sustain or reduce this trend?

Scolaro – After this high peak in May, there was a drop in daily copper prices, a price correction, so to speak.

So, at that historic peak, because it is a speculative issue, it may be a little difficult to maintain. But this price drop is not that sharp.

It is very likely that, now in the short term, copper will continue to experience a decline, or at least a stabilization very soon at these levels, but it is unlikely that it will return to low parameters like at the beginning of 2024 and 2023. It is clear that We have different scenarios. China is very uncertain. Nothing indicates this, but if there is a very strong real estate crisis in China soon, as it is the main source of demand for copper, this could lead to a drop in prices, precisely with a very drastic reduction in demand.

So it is possible to have various scenarios, but what everything indicates is that there will be a supply problem, or at least a delay in this normalization of supply, and that demand will either stay as it is now or tend to increase.

For prices, considering the medium and long term, it is very likely that these historical parameters in price positions will be like a new normal.

Inv.com – Electric vehicles are particularly affected by these price increases. How do you assess the current supply-demand dynamics in this sector and the potential impact of significant copper price hikes?

Scolaro – There is definitely a direct connection. Currently, the construction sector is the main buyer of copper, but the electric vehicle market is a rapidly expanding market, and an electric vehicle requires a lot of copper. If we compare the amount of copper used in a normal combustion vehicle and the amount of copper used in an electric vehicle, the amount is much greater. We have even gained technology over the last few years, seeking to reduce this amount of copper. If we take the average kilogram of copper used in vehicles today with the electric vehicle from a few years ago, it is much smaller. We have this movement precisely because of copper prices. The industry seeks to use as little as possible. But it is still a metal, as far as our technology is concerned, fundamental for this sector.

With this transition, copper tends to continue to be increasingly necessary for this sector and this scenario that is emerging will have a direct impact. We have several uncertainties, most of them political. In the electric vehicle market, the sector stands on its own, but many countries require government incentives precisely to grow persistently. So it is a little difficult to predict, in many countries, how much this demand will grow and how quickly this transition will occur.

And we also have several other factors, such as international governments that are looking at these metals, not just copper, but lithium and other metals associated with electric vehicles, as an opportunity to have more cash on hand, so to speak. For example, in Mexico, there was recently the nationalization of lithium mines. Now they belong to the federal government. In Chile, there was a change in the mining constitution that increased state royalties on copper. These are also price factors, which can lead to increases.

The expectation for Chilean copper is that the increase in royalties will be passed on in some way. These are certainly factors that should impact the electric car market. The perspective is that there will be a gain in technology that will make vehicles cheaper, but the commodities themselves end up being very much in this situation of this political game.

The perspective is that this could impact costs, depending on the progress of opening new mines, refinement rates, but this will lead, in the long term, to perhaps a flattening of profit rates for electric vehicle manufacturers or these costs eventually being passed on to the consumer.

Inv.com – China expects electric vehicle costs to decrease this year, while the US plans increased tariffs on vehicles from China. Which markets could emerge as new opportunities? Is Brazil among them?

Scolaro – Electric cars are very dependent on these political issues, but not only them. For example, here in Brazil, over the last few years there has been a huge increase in green energy, mainly solar and wind, and it has had many incentives from the federal government.

There was this huge increase in import taxes on electric vehicles in the United States, precisely in this context of the electoral race that is now taking place between Biden and Trump. They both have industry-related protectionist measures, but they are protectionist measures at different levels. Trump made statements and the Republican Party’s history shows that it is much closer to the oil sector , which could impact some of the incentive measures for this transition in the United States and make the transition to electric vehicles in the United States slower. Many experts in that market mention that the electricity sector in the United States is already standing on its own two feet, that even without incentives it will not destroy the industry, but it could certainly be a difficulty in the transition.

And here in Brazil, there is more difficulty because we have many discussions in Congress about incentives for electrical energy, not only electric vehicles, but also others such as green hydrogen. However, it is a process that is too slow to really take off. It’s a little difficult to say exactly what the perspective is. The trend is for Brazil to have more and more electric vehicles, but we have many games of interest, such as, for example, ethanol . We see politicians saying that we shouldn’t invest so much in electric vehicles, that perhaps we should focus on ethanol. The tendency is for it to increase more and more, but it ends up being a question of games of interest, making it difficult to predict where the market will go and at what speed.

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