The production output of the Organisation of Petroleum Exporting Countries (OPEC) member-countries has recorded its lowest level in nearly 30 years, due to production cuts after demand was heavily impacted by the COVID-19 pandemic. The last time oil production was cut to 22 million barrels a day was during the Gulf War in 1991.
Last month, OPEC cut production to 22.69 million barrels per day, in an effort to strengthen global prices for the commodity which was struggling with weak demand during a global lockdown occasioned by the pandemic.
OPEC leader, Saudi Arabia, has been compliant in its production cuts through the month of June. Back home, Nigeria has promised to do its parts in implementing total compliance with the cuts.
Production cuts from OPEC countries and other allies such as Russia (OPEC+) have helped to revive the price of Brent Crude to over $40 since May, compared to record lows in the month of April.
While the Gulf nations have implemented further cuts, Nigeria, Angola and Iraq are still lagging in full compliance, meeting only 77%, 83%, and 70% (respectively) of their quotas. Saudi Arabia reduced production by 1.13 million barrels to 7.53 million a day in June.
Other members like Venezuela pumped only 340,000 barrels a day in June, even though they are exempted from cuts as the country is dealing with a series of issues from US sanctions to a severe economic recession.
Meanwhile, Russia hit its target quota for the second month in a row as countries outside the OPEC also cut production due to falling demand impacted by the COVID-19 pandemic.
Gold suffers its worst January performance since 2011 amid rising U.S dollar
Spot gold dropped by 0.3% to $1,839.37 an ounce after ending 0.4% lower on Wednesday.
The yellow metal is currently under immense pressure on the basis it lost about $50 in value in the last two trading sessions.
What you should know: At the time of drafting this report, Spot gold dropped by 0.3% to $1,839.37 an ounce after ending 0.4% lower on Wednesday.
The precious metal has lost more than 3% this month, its worst January performance since 2011, as global investors weighed on the strong U.S dollar, prospects for more stimulus programs, and most importantly the surging viral attacks by COVID-19.
- The U.S Fed Reserve Chairman, Jerome Powell hinted that the availability of vaccines was grounds for optimism, further saying such could mean a significant improvement for the world’s biggest economy later this year.”
- Gold prices have also been under pressure, taking into account the U.S Federal Reserve left its benchmark interest rate unchanged as expected and stuck with the current pace of bond-buying, thereby supporting the dollar and putting bullion on course for the worst start to a year in 10 years.
Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on market conditions weighing on gold prices
“With the FOMC only holding the interest course, it wasn’t enough to boost gold, especially in the face of a more robust “safe-haven demand for the US dollar. Compounding matters gold is getting sold again, lightly mind you to cover margin calls weighing on sentiment.”
Bottom line: That said the precious metal is in a tight corner, as gold traders remain stuck in a tight range around.
Still, the trend is looking less and less constructive, as the yellow metal struggles to recover from the selloff that took place at the start of the year, and with the historically bullish January seasonality already taken out of the equation.
Oil prices stay resilient amid pressure from COVID-19
Oil prices rallied after industry data showed U.S. crude inventories dropped unexpectedly last week amid fears that the COVID-19 infection,
Oil prices rallied at the mid-week trading session after industry data showed that U.S. crude inventories dropped unexpectedly last week amid fears that the COVID-19 infection rates were getting out of control.
- U.S. West Texas Intermediate (WTI) rose 0.2%, to trade at $52.71 a barrel, reversing some of yesterday’s loss.
- Brent crude oil futures rallied by 0.2% to $56.02 a barrel.
What this means: Recent data retrieved from the American Petroleum Institute (API) showed crude oil inventories in the world’s biggest oil consumer, dropped by 5.3 million barrels in the week to Jan. 22 compared with analysts’ expectations in a Reuters poll for a build of 430,000 barrels.
China’s National Health Commission revealed that the world’s largest importer of oil recorded 124 cases on Jan. 24, up from 80 earlier, which is the worst wave of new COVID-19 infections seen since March 2020.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the prevailing macros helping oil prices though other reports reveal that oil would remain under pressure amid energy demand/supply rebalancing;
“Oil received a timely fillip after the API reported that US crude supplies declined 5.3 million barrels bullishly against consensuses.
“But problems may continue to linger under the hood as the data also reportedly indicated gasoline stock rose by near 3.1 million barrels. At the same time, the draws at Cushing make sense in backwardation markets.
“Even when mired in the pandemic’s darkest days, oil prices remain incredibly resilient in no small part due to OPEC’s dogged determination to stay in damage control mode adjusting supply constraints to alleviate the currently projected level of attrition to global demand.”
What to expect: While the general upward direction of travel in the market makes sense, it’s difficult for oil traders to make a definitive near-term shift to the next price level higher, given the very uncertain near-term demand outlook.
Gold traders remain cautious despite urgency in $1.9 trillion stimulus plan
Gold traders are of the bias that the precious market is heading from neutral to bearish…
Gold prices at Tuesday’s trading session moved slightly higher, despite the White House’s recent statement that there’s an “urgency” to passing the $1.9 trillion stimulus plan.
What you should know: At press time, gold futures were trading at around $1860/ounce.
Gold bug’s upside this week seems to be curbed in spite of its surge last week when it rose more than $26, or 1.4%, after losing almost 3.5% in two previous weeks combined.
- Gold traders are of the bias that the precious metal’s market is heading from neutral to bearish as recent price action reveal the potential head and shoulders chart pattern continues to form on the daily charts, and energy is building during consolidation.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke in detail on macros that could put gold prices upside limited at least for the near term:
“Gold conceded ground to stronger dollar overnight but remains bid against escalating US-China tensions over Taiwan. Gold is struggling to break out. Most short-term fundamentals suggest upside from here, but extended speculative positioning is acting as a drag.
“We will see what progress is made on the US USD1.9 trillion fiscal stimulus package during the remainder of the week. Presumably, the smoother it passes, the more favorable for gold.”
What to expect: On the central bank front, the highlight is the FOMC decision. The FOMC meeting should be gold supportive, but not new news. Robust GDP data could weigh on gold if yields react higher.