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.
Gold prices steady above $2,000 with nonfarm payrolls in focus
Investing.com – Gold prices moved little in Asian trade on Friday, sticking above key levels as markets awaited a potentially softer U.S. nonfarm payrolls reading, which comes just days before a Federal Reserve meeting.
The yellow metal had raced to record highs at the beginning of the week, helped by a mix of rate cut bets and safe haven demand.
But it had lost the record highs as abruptly as it had reached them, as traders locked in profits amid some uncertainty over U.S. monetary policy.
steadied at $2,030.26 an ounce, while expiring in February were flat at $2,046.05 an ounce by 01:17 ET (06:17 GMT). Both instruments had touched record highs above $2,100 an ounce on Monday, before swiftly reversing most gains.
Still, the yellow metal had now maintained the $2,000 an ounce level for nearly three weeks, indicating increased optimism over gold’s prospects in the coming months.
Nonfarm payrolls in sight, markets seek softer reading
Focus was now squarely on data for November, due later on Friday.
The reading is expected to show further cooling in the labor market, after a drop in and data signaled some unwinding in the sector.
Any further cooling in the labor market gives the Federal Reserve less impetus to keep interest rates higher for longer-a scenario that benefits gold.
While the central bank is when it meets next week, its outlook on monetary policy, particularly on when it plans to begin trimming rates, remains uncertain.
Bets that the were a key point of support for gold prices earlier this week. But traders scaled back those bets, given that the Fed has largely maintained its stance that rates will remain higher for longer.
Still, the yellow metal may be poised for more strength in the coming months, especially if interest rates fall and global economic conditions deteriorate further.
A raft of recent economic readings from the U.S., Asia and the euro zone suggested that growth was set to cool in 2024.
Factbox-Australia’s Woodside, Santos in talks for $53 billion oil-gas merger
© Reuters. FILE PHOTO: FILE PHOTO: View of a model of carbon capture and storage designed by Santos Ltd, at the Australian Petroleum Production and Exploration Association conference in Brisbane, Australia May 18, 2022. REUTERS/Sonali Paul/File Photo/File Photo
(Reuters) – Australia energy companies Woodside (OTC:) and Santos Ltd said late on Thursday that they are in preliminary merger talks, in what could be the latest big deal in a wave of global consolidation the in oil and gas sector.
A potential combination of the companies, which together have a market value of about $52 billion, comes amid challenges faced by both in their domestic projects from Indigenous people as well as rising pressures of decarbonisation.
Both companies have seen their share performance lag global peers.
Woodside in October cut its its 2023 production outlook and missed third-quarter revenue estimates, while it was ordered by the Australian federal court to seek new approval to conduct seismic blasting under the seabed for its $12 billion Scarborough gas project after a legal challenge by an Indigenous woman.
Santos is contending with legal challenges from a traditional land owner from the Tiwi Islands on undersea pipeline works for its $3.6 billion Barossa gas project and has forecast lower output in 2024 as its Bayu-Undan gas field reached the end of its life and its West Australian offshore field’s output declined.
Below are key details on both companies, including production and reserves measured in million barrels of oil equivalent (mmboe):
Market cap ($ in billion) 37.39 15.56
Revenue ($ in billion)
Production (mmboe) Domestic 136.6 61.3
International 21.1 41.9
Total 157.7 103.2
Proved plus probable reserves (mmboe) 3,640.3 1,745
Production forecasts (mmboe)
183-188 (2023) 84-90 (2024)
ASSETS AND PROJECTS
Woodside operates major liquefied (LNG) export facilities in Australia, including North West Shelf and Pluto LNG, and three floating production storage and offloading (FPSO) facilities in western Australia. The company also owns a stake in the Chevron-operated Wheatstone LNG project.
The company is involved in oil-gas joint ventures in the Bass strait and partners with Santos at Macedon, a gas field off western Australia. Woodside has been trying to sell ageing domestic oil and gas assets where production is declining and high decomissioning costs are required.
The company received approval for its Scarborough and Pluto Train 2 projects in Australia in 2021, with first LNG cargo expected in 2026.
Globally, Woodside operates in the U.S. Gulf of Mexico with three offshore platforms, as well as an offshore processing facility in Trinidad and Tobago.
In Senegal, Woodside is targeting first oil production at the Sangomar Field Development Phase 1 in 2024. Woodside has also made a final investment decision to develop the large, high-quality Trion resource in Mexico, with first oil output targeted for 2028.
Other Woodside projects include proposed hydrogen and ammonia projects H2Perth and H2TAS in Australia and another hydrogen project, H2OK, in North America.
Santos operates Gladstone LNG and holds a stake in Papua New Guinea LNG.
The company expects production at the Timor-Leste Bayu-Undan field to cease in 2025 and plans to backfill Darwin LNG with supply from the Barossa field.
Santos is the second-biggest producer of domestic gas in Western Australia and has invested in two offshore oil fields, Van Gogh and Pyrenees.
On the Australian east coast, Santos portfolio includes the Cooper and Eromanga Basins as well eastern Queensland production.
In the U.S., Santos is advancing its Pikka Phase 1 project in Alaska, expecting first oil production in 2026.
If the companies merge, they would have a 26% share of Australia’s east coast gas market.
Combined oil and gas production in 2022 for the two totaled slightly over 260 million barrels of oil equivalent (mmboe), and their total proven plus probable reserves are 5.39 billion mmboe, based on data from the companies.
The Australian Competition and Consumer Commission (ACCC) said on Thursday it would consider whether a public merger review into the impact on competition was required if the deal goes ahead.
“Given ACCC’s focus on East Coast gas, we expect a (merged company) may be a forced seller of the Cooper Basin,” Macquarie bank analyst Mark Wiseman said in a note.
($1 = 1.5154 Australian dollars)
Oil heads for seven week decline for first time in five years
© Reuters. An aerial view shows an oil factory of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Picture taken on November 12, 2021. Mandatory credit Kyodo/via REUTERS ATTENTION EDITORS – THIS IMAGE WAS PROVIDE
By Paul Carsten
LONDON (Reuters) -Oil benchmarks were on track for a seven-week decline on Friday, their first in half a decade, on worries about a supply surplus and weak Chinese demand, though prices rebounded after Saudi Arabia and Russia lobbied OPEC+ members to join output cuts.
futures were up $1.51, or 2%, at $75.56 a barrel at 1234 GMT, while U.S. West Texas Intermediate crude futures were up $1.42, or 2%, to $70.76 a barrel. Brent had earlier risen by $2.
Both benchmarks slid to their lowest since late June in the previous session, a sign that many traders believe the market is oversupplied. Brent and WTI are also in contango, a market structure in which front-month prices trade at a discount to prices further out.
OPEC+’s “weakening position in providing support coupled with record high US production and sluggish Chinese import figures can only mean one thing: there is an abundance of oil available, which is neatly reflected in the contangoed structure of the two pivotal crude oil benchmarks,” said Tamas Varga of oil broker PVM in a note.
Friday’s gains, meanwhile, are a “correction and nothing else,” Varga said.
Saudi Arabia and Russia, the world’s two biggest oil exporters, on Thursday called for all OPEC+ members to join an agreement on output cuts for the good of the global economy, only days after a fractious meeting of the producers’ club.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year.
“Despite OPEC+ members’ pledges, we see total production from OPEC+ countries dropping by only 350,000 bpd from December 2023 into January 2024,” said Viktor Katona, lead crude analyst at Kpler.
Some members of OPEC+ may not adhere to their commitments due to muddied quota baselines and dependence on hydrocarbon revenues, Katona said.
Brent and WTI crude futures are on track to fall 4.2% and 4.5% for the week, respectively, their biggest losses in five weeks.
Fuelling the market’s downturn, Chinese customs data showed its crude oil imports in November fell 9% from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.
In the United States, output remained near record highs of more than 13 million bpd, U.S. Energy Information Administration data showed on Wednesday. [EIA/S]
The market is also looking for monetary policy cues from the official U.S. monthly job report due later today, which is expected to show November job growth improving and wages increasing moderately. That would cement views that the U.S. Federal Reserve is done raising interest rates this cycle.
In Nigeria, the Dangote oil refinery is set to receive its first cargo of 1 million barrels of crude oil later on Friday, the start of operations that, when fully running at 650,000 barrels a day, would turn the OPEC member into a net exporter of fuels after having been almost totally reliant on imports.
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