Crude oil prices rallied higher on Wednesday at Asia’s trading session. This was triggered by American oil producers shutting down most of their oil production in the Gulf of Mexico ahead of a pending hurricane storm and high hopes on China-U.S. trade talks.
Brent crude futures gained, trading at $45.94 per barrel as at 0515GMT. West Texas Intermediate crude was also up 0.03%, trading at $43.37 per barrel. Both crude oil benchmarks settled at a five-month high yesterday.
However, the recent upside was capped amid renewed concerns over the COVID-19 pandemic which had earlier curbed fuel demand. There have been reports from Europe and Asia about patients being re-infected with COVID-19, a situation that has raised concerns about future immunity.
Stephen Innes, the Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, commented on the most important macro that crude oil traders are presently concerned about as the storm sets its course on the Gulf of Mexico, raising fears that energy supplies could be disrupted. He said:
“Oil and gasoline futures charged to a five-month high as hurricane Laura takes dead aim on the US Gulf coast, which is home of the country’s most considerable refining capacity.
“Crude futures are tracking gasoline higher as the US energy complex is fronting catastrophic circumstances. The back to back storms have not only caused producers to shut in 1.5Mbd (>80%) of production in response but also some of the world’s largest refineries have reduced operations or shuttered plants in advance of Laura raising concerns of a potential near-term gasoline shortage.”
The key to near term price movements will be the extent of any damage caused by the hurricanes, bolstered by the support from broader risk markets once the hurricane price pressure eases, as it always does.
Oil prices fall under pressure over rising number of COVID-19 cases in China
Brent crude was down by 0.24% to trade at $55.12 barrel, and WTI futures inched down by 0.10% to $52.22 a barrel.
Oil prices drifted lower at the first trading session in London, recording a second consecutive trading session of losses, as the ever-rising number of COVID-19 cases, particularly in China, raise energy demand fears.
What you should know: At the time of writing this report, Brent crude was down by 0.24% to trade at $55.12 barrel, and West Texas Intermediate futures inched down by 0.10% to $52.22 a barrel.
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 current fundamentals weighing on oil prices, at least for the near term. In addition, he spoke on how the COVID-19 pandemic seemed to distort the bullish rally.
“The Lunar New Year headline heebie-jeebies did a number on oil prices into weeks end. Yet after hitting an intraday low US$54.48 per barrel, Brent crude managed to close above US$55 despite the clear demand impacts of lockdowns in Europe and additional measures in China.
The enormous question mark remains around demand and supply.
- The street uniformly downgraded Q1 21 market in the world ex-China due to clear demand impacts of lockdowns in Europe to start the year. But last week it was back to the downward demand revision drawing board.
- More worryingly, however, since Asia has been the backbone of physical crude oil demand, this time it was to down-ballot China consumption as lockdowns spread in the country just weeks ahead of the Lunar New Year travel surge.”
What to expect: Still, the one million barrels per day of additional Saudi curbs over February and March should alleviate the currently projected level of attrition in global demand recovery without much impact on the path of OECD inventory draws.
Oil prices drop amid fears on energy demand softening
West Texas Intermediate, lost 1.6%, at $52.27 per barrel. It was WTI’s worst daily plunge slide since last Friday when it fell 2.2%.
Oil prices fell their most in a week after the first U.S. crude build in six weeks on the fear that the world’s largest economy might distort energy demand/supply rebalancing.
What you must know: U.S based oil contract, West Texas Intermediate, lost 1.6%, at $52.27 per barrel. It was WTI’s worst daily plunge since last Friday when it fell 2.2%.
- But for the week itself, the U.S. crude contract lost about 0.2%.
- British based Brent, the global benchmark for crude, settled 1.4%, at $56.10.
- The gain in crude oil inventories coincided with President Joe Biden’s recent statements calling on its citizens for tough days ahead from the Covid-19, which could kill up to about half a million Americans.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave valid insights on the effect COVID-19 and other macros have on oil prices.
“Oil prices look a tad vulnerable to potential profit-taking after US crude stockpile bearishly rose 2.56 million against consensus draw. Simultaneously, the near-term China crude demand forecast looks high and susceptible to revision lower as lockdown spread in the country ahead of the Lunar New Year
.“While oil traders see through longer lockdowns on the premise that vaccinations will quickly lead us out of the pandemic, COVID mobility clampdowns still hurt the very near-term view.
“And since calls for a commodity supercycle have been many after the November vaccine turnaround, open interest in Brent and WTI has increased hugely, suggesting that the market remains very susceptible to any potential bearish headlines big or small, from a positioning perspective alone.”
What to expect: OPEC production at the moment remains well below the level required to meet anticipated demand. It should continue to drive a reduction in oil inventories as the global economy gradually recovers.
Gold prices pull back after hitting highest levels in 2 weeks
Spot gold was down by 0.4% to trade at $1,862 per ounce after hitting its highest since Jan. 8 at $1,874.50 earlier in the session.
Gold prices pulled back a little of its gains recorded on Thursday, as it traded near its highest level in nearly two weeks.
The greenback’s slight rebound at Asia’s trading session on Friday dented the precious metal’s upsides.
Gold prices have been rallying high on reports that President Joe Biden’s administration would push for more quantitative easing programs in order to support the world’s biggest economy.
At the time of drafting this report, Spot gold was down by 0.4% to trade at $1,862 per ounce after hitting its highest since Jan. 8 at $1,874.50 earlier in the session.
What you must know: It’s key to note that the precious metal typically moves in the opposite direction from global stock markets, especially the American and European stock markets.
- Humans are emotionally and physically drawn to gold. It provides a significant store of value.
- Global Investors buy gold mainly to hedge against inflation.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the recent price movements prevailing at the precious market;
“Gold bears have entered a temporary state of hibernation. The yellow metal seems to be past the lows for the month as the current ” everything but the kitchen sink ” policy backdrop and FX tailwinds for precious metals remain favorable.
“Resistance lies at the 100-day moving average at $1884. But the market needs a few more ounces of policy conviction for a break higher. Treasury yields should dictate the direction of bullion and a rally could quickly ensue if further inflation expectations kick in.”
Bottom line: The yellow metal bugs are still in play, at least for the slightly longer horizon, given that global central banks are likely to stay dovish for an extended period of time.