Brent crude futures dropped 0.70%, to sell at $40.40 a barrel today at 4.54 am local time. The Crude oil international benchmark contract lost about 25 cents yesterday.
Strengthening concerns about global energy demand increased momentum after a surge in COVID-19 caseloads around the world led China to postpone flights and close schools.
In addition, a surge in U.S. crude inventories to a record high in two weeks, dampened oil traders’ bullish sentiments even though the U.S government data showed stockpiles for distillate and gasoline dropped.
Understanding Brent Crude; Brent crude is the leading global benchmark for Atlantic basin crude oils. The international benchmark is used to set the price of crude oil of about two-thirds of the world’s traded crude oil including Nigeria’s crude.
“People are concerned about the coronavirus resurging in China and crude stockpiles rising,” said Lachlan Shaw, head of commodity research at National Australia Bank.
Consequently, to tackle weakened oil demand, OPEC and its major allies agreed to a record supply cut that started last month, while Nigeria and other major oil-producing countries pledged to produce less crude oil, in other to support crude oil prices. OPEC said these cuts were already serving its purpose.
“The oil market was strongly supported by a reduction of the global crude oil surplus, thanks mainly to the historic voluntary production adjustment agreement,” OPEC said, adding it saw a “gradual recovery” in demand until the end of the year.
Saudi Crown Prince in talks with President Buhari over oil price stability
They talked on “ways of cooperation to enhance the stability “ of the Crude market.
Saudi Arabia’s Crown Prince, Mohammed bin Salman, had a telephone call with Nigeria’s President, Muhammadu Buhari on Monday to discuss further oil production cuts in a bid to improve the global crude markets, according to the Saudi News Agency.
The agency announced both countries talked on “ways of cooperation to enhance the stability “ of the Crude market.
The Saudi ruler usually calls other members of the oil cartel to negotiate and discuss OPEC issues.
OPEC+ wants to reduce global supply by 10% or 9.7 million barrels a day, however, Nigeria has been accused of not doing its part in production cuts.
GMD of NNPC, Mele Kyari promised on June 12 that Nigeria will commence production cuts in June and will achieve full compliance by July.
Exports show Nigeria is pumping 1.38 million barrels per day, however, Nigeria’s quota to meet its production cut is 1.37 million barrels per day.
Nigeria has ignored calls for OPEC production cuts in the past as the country enters an economic recessio0n which may be its worst in 40 years caused by weak global demand for its number one export, crude oil. IMF expects the Nigerians economy to decline by 5.4% in 2020, the World Bank forecasts 4.9 million Nigerians at risk of falling into poverty this year due to the falling economy.
Gold Breaks $1,800 ceiling, reaches record high since 9/11
This was the highest reached by a benchmark Comex contract for gold since September 2011.
Gold rose beyond the $1,800 per ounce target long eyed as a result of bulls on the commodity as concerns increase over the second wave of COVID-19 infections as well as increasing stimulus measures geared towards mitigating the economic effect of the pandemic. A number of analysts also predict that the safe-haven asset would attain record highs above $2,000 in the months to come as COVID-19 cases further increase. At 6:30 am today, the price stood at $1801.5.
U.S. gold futures on Comex had risen by $19.30, or 1.1%, at $1,800.50, after hitting an intraday high at $1,803.95. This was the highest reached by a benchmark Comex contract for gold since its all-time peak of $1,911.60 in September 2011. Spot gold also increased by $8.58, or 0.5% at $1,781.20, after a session high of $1,785.97. That was also the highest since its September 2011 record of $1,920.85.
Philip Streible, the chief market strategist at Blue Line Futures in Chicago noted, “I believe that with additional lockdowns happening globally that central banks will continue to support the market at any cost. This should result in the Fed’s balance sheet continuing to grow and in turn provide underlying support in the precious metals markets. Gold should continue to track higher with $1,900 by Labor Day, $2,000 by Thanksgiving.”
In the United States, around 40,000 new coronavirus cases are announced daily in the ongoing outbreak, and it is projected to grow to as much as 100,000 daily. Top U.S. pandemics expert, Anthony Fauci said that this could be the country’s fate without adequate social-distancing amongst other safety measures. Even worse is that some health officials believe that the cases could be as much as 10 times higher than the official count. China, India and New Zealand have also had higher caseloads lately.
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Another determinant of the increasing price of Gold, the U.S. Federal Reserve and Congress have also passed more than $3 trillion in stimulus to mitigate the negative impact of the pandemic on the economy.
Crude oil soars high as inventories plunge
Brent crude gained 1.1%, to trade at $41.73 a barrel by 6:30 am Nigerian local time.
Crude oil prices began the third quarter on a bullish momentum after an energy report showed that crude inventories in the world’s largest economy plunged more than expected. This suggests that demand is picking up, even with the resurgence of the COVID-19 virus.
Brent crude gained 1.1%, to trade at $41.73 a barrel by 6:30 am Nigerian local time, also U.S. crude was up 1.27%, to trade at $39.77 a barrel.
U.S crude inventories plunged by 8.2 million barrels to 537 million barrels, against experts’ forecasts for a draw of 710,000 barrels.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note sent to Nairametrics, explained the bullish bias currently happening in the energy market. He said:
“Oil prices jumped after settling -1.08 % when The American Petroleum Institute (API) survey estimated a significant draw in crude oil inventories of 8.156 million barrels for the week ending June 26, which was much higher than analysts guesses.
“However, bullish appetites could be tempered somewhat as distillate inventories were up by 2.638-million barrels for the week, compared to last week’s 2.605-million-barrel draw. And in contrast to the headline number, Cushing inventories reported a small build of 164,000 barrels.”
Innes continued by giving a detailed analysis of what seems to be an evaporated oil output glut market, even with concerns about COVID-19 arising.
“The oil market has had a busy 24 hours digesting a stream of headlines, the onslaught of grim warnings around global Covid19 concerns notwithstanding.
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“But without question, if the API estimates are vetted by the official government agency data due out tomorrow, this will be viewed as a definite bullish signal. The reports could go a long way to easing some of those lingering inventory concerns. And possibly there is enough oomph in today’s announcement to trigger a retest of the psychologically important WTI $ 40 before tomorrow’s EIA release.”
The virus continues to spread around the world with ever-increasing rates of infection. Cases now total more than 10 million with more than half a million people dying after contracting COVID-19.