Energy & Precious Metals - Weekly Review and Outlook
By Barani Krishnan
Investing.com -- A bad week for oil before an OPEC+ meeting? It’s hard to imagine, but that’s what’s been happening of late. “It is what it is”, as the saying goes.
Until May, crude had a picture-perfect setting. Month after month from November, prices of Brent and West Texas Intermediate rose without stop, even posting double-digit gains in December and January.
Then, OPEC+ - comprising the 13-member Saudi-led Organization of the Petroleum Exporting Countries and its 10 allies led by Russia — had a near indomitable hold on the market.
Russia’s invasion of Ukraine and the global disruption of commodities that followed; Moscow’s ability to hold the West at ransom over energy; and the Saudis’ mollycoddling of Vladimir Putin sent crude prices to 14-year highs, creating the illusion of an OPEC+ that could just not be outwitted.
But things have changed since, the fledgling US recession being one, along with the potential for a deeper slowdown across Europe.
In recent weeks, talk has heated up on the likelihood of the Iran nuclear deal being revived to unlock U.S. sanctions that could allow up to a million barrels of oil from the Islamic Republic to be legitimately exported on the global market.
The White House made clear on Friday that there was no Iran deal as yet.
But it also said there should be no link between the reimplementation of the Iran nuclear deal and Tehran's obligations under the nuclear Non-Proliferation Treaty.
That was the strongest signal yet that Washington really wanted a revival of the deal, agreed between Iran and six global powers in 2015 under the aegis of the Obama administration. The Trump administration that came on later canceled the deal in 2018 and placed sanctions on Tehran. President Joe Biden, on entering office in January last year, allowed negotiations to begin with the aim of reviving the deal.
And, just as the trade thought it was over, China’s Covid problems resurfaced this week, with public transport shut down in key districts of the Shenzhen technology hub. Almost 18 million Shenzhen residents were scheduled to be tested twice for coronavirus over the weekend as subway and bus services were suspended.
Add to that the possibility of another large U.S. rate hike over the next two weeks and you have a perfect storm for oil bulls. A relatively strong U.S. jobs data report for August, released Friday, suggested the Federal Reserve would be in a position to carry out a 75-basis point rate hike for a third straight time when the central bank meets on Sept 21.
WTI ended down 6.7% for the week, back beneath $90 per barrel. Brent lost 6.4%, sliding below $95.
“It’s hard to believe that oil can lose this much in a week ahead of an OPEC+ meeting,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.
“The truth is OPEC+ still has a vice grip on this market and with all the noise it’ll likely be making at Monday’s meeting, there’s every chance that oil can roll back a substantial part of this week’s losses. The question is whether the gains would hold since we’ll be having thinner volumes too from Monday’s market closure for Labor Day.”
Oil: Market Settlements and Activity
New York-traded West Texas Intermediate , the benchmark for U.S. crude, did a final trade of $87.25 a barrel after settling the session up 26 cents, or 0.3%, at $86.87. WTI’s session peak was $89.61.
WTI was down in three prior sessions, losing 3.3% on Thursday, 2.3% on Wednesday, and 5.5% on Tuesday. That left the U.S. crude benchmark down 6.7% for the week.
Brent , the London-traded global benchmark for oil, did a final trade of $93.28 after settling Friday’s trade up 66 cents, or 0.7%, at $93.02. The session high was $95.28.
Like WTI, Brent was down in three prior sessions, losing 4.5% on Thursday, 2.8% on Wednesday, and 5% on Tuesday. For the week, it fell 6.4%
Oil: WTI Technical Outlook
WTI needs to get above $96.50 per barrel in the coming week in order to sustain a rally, Sunil Kumar Dixit, chief technical strategist at SKCharting.com said.
“WTI’s weekly oversold stochastics of 3.66/12.08 continue to remain in negative formation pointing to further losses,” Dixit said.
“Short-term recovery may show some move towards $91.37–$92.60 and $95.80-$96.30. However, it will require strong acceptance above $96.50.”
Dixit, however, said he expected WTI to test the monthly Middle Bollinger Band of $82.57 and make a rebound towards $97, extending the run-up to $101-$104 over the next two weeks.
“But in the event of strong selloff beyond $82, WTI will find value buyers at $77, which is 78.6% Fibonacci level."
Gold: Market Settlements and Activity
There are just about three weeks left for the next Federal Reserve decision on rates. Yet it may feel like the longest three weeks to gold bulls who have seen only red almost day after day of recent trading.
The benchmark gold futures contract on New York’s Comex, December , did a final trade of $1,722.60 an ounce, after settling Friday’s trade down $13.30, or 0.8%. Prior to that, December gold was down five sessions in a row, after its last positive close of $1,771.40 on August 25.
For the current week itself, December gold slid 1.6%, adding to the back-to-back slide of 0.7% and 2.9% in the last two weeks. Gold futures have also fallen six months in a row since its last positive close of $1,954 in January, losing almost 12% in that stretch.
Worse than futures was the spot price of bullion , which is more closely followed than futures by some traders, which was up $15.20, or 0.9%, to $1,712.84.
Gold: Price Outlook
Dixit of SKCharting said he does not expect gold to drop substantially below $1,670 an ounce.
“A positive overlap in gold’s oversold Daily Stochastics reading of 25/11 indicates a short-term rebound,” Dixit said.
“Yet this recovery may be short-lived and the $1,726-$1,735 resistance zone can push gold down again towards the $1,700-$1,690 breaking zone, where the 200-week Simple Moving Average of $1,671 can be tested.”
In the intermediate term, gold could attempt $1,800 again, said Dixit.
“The $1,726-$1,735 resistance zone can return gold for one more retest of $1,700-$1,690 that could extend to $1,671. From there, the push higher could see $1,760-$1,785-$1,800.”
“We don't see any major drop below $1,670.”
Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about.
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