Energy & Precious Metals - Weekly Review and Calendar Ahead

  • Commodities News
Energy & Precious Metals - Weekly Review and Calendar Ahead
Credit: © Reuters.

By Barani Krishnan - Forget that OPEC+ will be meeting again Monday. Or that the U.S. U.S. jobs report for September will be out Friday. 

Think instead of Merck’s Covid pill announcement from the Friday that just passed, because that could be bigger for risk in the near term than anything else.

For those who remember, global risk assets got a major shot in the arm when Covid-19 vaccine efficiencies ( Pfizer (NYSE: PFE ) 95%, Moderna (NASDAQ: MRNA ) 94%) were announced for the first time in November. Brent, the international benchmark for oil, jumped 27% that month alone, and is already up 53% this year. 

To be sure, it’s still early in the day for the Merck (NS: PROR ) pill, the first oral drug of its kind for the coronavirus. Despite the early euphoria over vaccines, their rollouts haven’t been quite as imagined, with the poorest parts of the world still awaiting the doses while politics keep large numbers unvaccinated in the most privileged countries. 

What’s evident is that nations are pushing to keep their economies open despite the Covid terror reintroduced by the Delta variant. But what also keeps many from resuming a “normal life” is fear as much as the new caseloads that keep spiking every now and then.

For the record, Merck (NYSE: MRK ) says the molnupiravir pill it jointly developed with Ridgeback Biotherapeutics has reduced the risk of hospitalization or death by approximately 50% in unvaccinated patients.

Molnupiravir’s efficacy was not affected by the timing of symptom onset or patients’ underlying risk factors, Merck’s study showed. It also proved to be consistently effective in treating all variants of Covid, including the widely dominant and highly transmissible Delta.

Merck says it has already begun producing molnupiravir. The pharmaceutical giant expects to produce 10 million courses of treatment by the end of 2021, and more doses in 2022.

The company agreed earlier this year to supply the U.S. with around 1.7 million courses of molnupiravir pending emergency authorization for the drug from the Food and Drug Administration. The federal government also has the option to purchase additional doses if the drug is approved, White House coronavirus response coordinator Jeff Zients said at a briefing Friday.

Merck has entered supply and purchase agreements for the drug with other governments — pending regulatory authorization — and is in discussions with other governments about the supply of molnupiravir.

The company plans to implement a tiered pricing approach based on World Bank country income criteria to ensure molnupiravir can be accessed globally. Merck previously announced that it had entered into nonexclusive voluntary licensing agreements for molnupiravir with generic manufacturers, a move intended to assist low and middle-income countries in gaining access to the treatment. Those agreements are also pending approvals or emergency authorization by local regulators.

As Merck awaits FDA approval for the pill, the idea of a game changer in recovery that might be more acceptable than a vaccine could sweep markets up in a new fervor of risk.

Aside from energizing risk appetite, the pill might help stimulate jobs recovery in greater numbers, convincing the Federal Reserve to boldly decide on its stimulus taper and eventual rate hike. Yes, bulls salivating over new highs in oil and stock prices shouldn’t forget about the prospect of swifter Fed action either. 

With the threat of inflation getting more insane by the day, putting people back to work and fixing broken supply chains should be a greater priority, even if it means attracting higher interest rates that could temper bulls markets.

Oil Market & Price Roundup

Oil had its best month in three for September, gaining almost 10%. It made a strong debut for October as well, based on the euphoria over Merck’s Covid pill, despite OPEC+ reportedly planning to push out more barrels to the market than initially planned.

New York-traded West Texas Intermediate , the benchmark for U.S. oil, settled October’s first session up 85 cents, or 1.1%, at $75.88 per barrel. For the week, WTI rose 2.6%. For September, it gained 9.5%, its most since June. For the third quarter, the U.S. crude benchmark rose 2%.

London-traded Brent crude, the global benchmark for oil, finished Friday’s session at $79.28 per barrel, up 97 cents, or 1.2%.  Brent rose 1.9% on the week. For  September, it gained 7.6%, its most since June. For the third quarter, the global crude benchmark rose 4.5%. 

OPEC+ — comprising the 13-member Saudi-led Organization of the Petroleum Exporting Countries and a group of 10 other producers steered by Russia — is considering going beyond its existing deal to boost production by 400,000 barrels per day when it meets next week, four sources familiar with the alliance’s thinking were reported saying. 

The move was against a backdrop of a near three-year high in oil prices and pressure from consumers for more supply, the sources said.

While OPEC+ initially stonewalled demands for more crude during the summer from a White House trying to clamp down on inflation, “this time it’s different”, said Ed Moya, an analyst at online trading platform OANDA. 

“OPEC+ could easily justify delivering more than the gradual 400,000 bpd increase in November and they probably should consider doing so,” said Moya. ““The energy crunch could trigger massive volatility and dampen global growth prospects, so OPEC+ should consider a tweak.”

Natural gas prices surged 35% in U.S. trading in September on worries that the entire northern hemisphere — which comprises North America, Europe, the northern two-thirds of Africa and most of Asia — might be short of the fuel for power generation in the coming months, as well as heating in the winter.

The knock-on effect from gas has even led to a doubling in prices of coal — the world’s least-liked commodity from an environmental perspective. Australian thermal coal at Newcastle Port, the benchmark for the vast Asian market, has climbed 106% this year to more than $166 per metric ton, according to end-September pricing data.

“People are starting to throw the ‘crisis’ word around” when it comes to Europe, John Kilduff, a partner at the Again Capital hedge fund in New York, told CNBC. “Europe is squarely behind the eight ball going into the winter season. It’s going to put the focus on this commodity that’s been overlooked for the last several years.” 

The price of keeping the lights on in Spain has tripled, reflecting a broader spike in power bills across the EU in recent weeks. Spain, Italy, Greece, Britain and other others are planning national measures, ranging from subsidies to price caps, aiming to shield citizens from rising costs as economies recover from the Covid-19 pandemic.

Gold Market & Price Roundup

In a sign that its worst may be over — for now that is — gold made a modest gain as trading for October began, joining most risk assets trying to recover from September’s hellish ride.

A retreat in both the dollar and U.S. bond yields also helped gold post a second straight week of gains, small as they may be. 

U.S. gold futures’ most active contract, December , settled Friday’s trade at $1,758.40 per ounce on New York’s Comex, up $1.40, or 0.1%. 

For the week, it managed a 0.4% gain despite Thursday’s 2% trouncing that contributed to September’s torrid loss of 3.4%.

“We may be seeing gold enjoy some safe-haven flows as the outlook becomes increasingly more uncertain,” said Craig Erlam, analyst at online trading platform OANDA. 

“It will be interesting to see if it can maintain these gains if risk aversion continues in the coming weeks. Many obstacles remain to the upside which will make any ascent very challenging. The first of these is $1,760 where it ran into resistance yesterday, followed by $1,780.”

Energy Markets Calendar Ahead

Monday, Oct 4

Cushing crude inventory estimates (private)

Tuesday, Oct 5

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Oct 6

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories  

Thursday, Oct 7

EIA weekly report on natural gas storage

Friday, Oct 8

Baker Hughes weekly survey on U.S. oil rigs

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.


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