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Commodities

Gold prices tumble, U.S dollar up

At about 6.11 am West African time, Gold futures lost about 0.39% to trade at $1866/ounce.

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The yellow metal was down at the fourth trading session in London. The selling pressure seen lately in the gold market is coming on macros revealing Pfizer’s safety data to advance its COVID-19 vaccine to the U.S. Food and Drug Administration for approval, coupled with the U.S dollar rebounding up.

At about 6.15 am West African time, Gold futures lost about 0.41% to trade at $1866.20/ounce.

READ: U.S dollar up, Currency traders focus on U.S election

What this means

The rebound seen lately in the U.S dollar has helped diminish appetite for the precious metal with the U.S dollar rising, as global investors move from stocks to the more risk-averse asset. A stronger U.S dollar makes the yellow metal more expensive for holders in other major currencies.

READ: FG to disburse N97.3 billion to tech innovators, agric enterprises

Adding more woes to gold bulls include reports from Pfizer/BioNTechvaccine team that they have enough safety data to advance their COVID-19 vaccine candidate to the U.S. Food and Drug Administration for approval within days.

What you should know:

  • Global Investors buy the hard safe haven asset mainly to hedge against inflation and for wealth preservation.
  • Gold traders, global investors also consider buying gold as a way of diversifying risk, via using futures contracts and derivatives.

READ: Covid-19: Pfizer, BioNTech say their vaccine is now 95% effective in completed study

What they are saying

In an explanatory note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, spoke on the prevailing reports affecting the precious metal market.

“Gold markets remain pretty stagnant, but the buy on dip mentality still prevails with US Fed Chair Powell and Vice Chair Clarida sticking to script this week. Both acknowledge the surge in coronavirus cases is a big concern for an economic recovery that still has a “long way to go” and the economy will continue to need support from fiscal and monetary policy.”

READ: Gold prices under pressure, U.S dollar ticks up

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Bottom Line

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Nairametrics doesn’t have much of a salient view on the yellow metal in the near term, as other riskier assets (Stocks, Cryptos) are lighting up more distinctively for the eventual 2021 reflation tick up, which has lesser issues about the concerns of rising U.S Treasury yields.

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Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment trading. Follow Olumide on Twitter @tokunboadesina. He is a Member of the Chartered Financial Analyst Society.

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Commodities

Will Nigeria be allowed to produce more oil at this OPEC meeting?

Nigeria is hopeful that OPEC+ will agree to an increase in production.

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Saudi, Russia agree to cut oil by 20 million barrel, Further oil production cut required to keep oil price above $40 in 2020 , OPEC + deal to boost Nigeria’s earnings by $2.8 Billion

This week brings forward one of the most important meetings OPEC+ faces in her history. After rescuing the markets from low oil prices with tight supply, the time has come to balance the market. OPEC and its non-OPEC allies, in short, OPEC+, will meet through videoconference in an offer to arrive at an agreement over how to oversee supply to the market.

The current week’s supply choice comes when oil prices have bounced back to pre-pandemic levels. Experts comprehensively anticipate that OPEC+ should increase oil production from current levels, however, questions stay over how much precisely and which nations will be influenced.

READ: How Libya and Iran can add to Nigeria’s woes

Two quotes to review

First the Saudi Energy Minister’s quote – “So I urge you today not to take for granted the progress we have made as a group over the past year. Do not put at risk all that we have achieved for the sake of an instant, but illusory, benefit,”. Prince Abdulaziz bin Salman, the Saudi Energy minister highlighting why OPEC should still tread carefully in increasing output.

Secondly, the Russia Deputy Prime Minister quoted on the 14th of February, “the market is balanced”. Alexander Novak who also co-chairs the OPEC group will be clamouring for more output.

READ: Bloomberg report on OMO is “fabricated” – CBN Official 

The reality

Nigeria’s economy is struggling with its low production quota. The quota is about 1.45 million barrels a day. Although reports show that Nigeria breached its quota by producing 130, 000 barrels more to 1.6 million barrels per day. Late last year, Nigeria applied to have its baseline figure to be reviewed based on disagreements over the classification of output from the country’s Agbami field. Although the request was denied, now Nigeria is hopeful that the group will agree to an increase in production.

Nigeria had shown signs of better discipline at the end of last year, and in recognition Timipre Sylva, the Nigerian Oil minister was sent to guide other African countries in improving their oil compliance levels.

OPEC and its allies are still withholding 7 million barrels a day from the market, which represents about 7% of global supply. Most Investment banks and trading houses believe prices will soar higher because of the tight supply situation. This assertion is supported by the U.S output freeze in Texas and Iranian talks on hold with the U.S.

READ: Will the Oil markets miss Donald Trump?

Although some reports still claim that the market is not as tight as it seems and prices are only up because of how financial markets or funds have gone “long” on commodities. A report from Reuters shows that ‘there might be a disconnect emerging between the strong pricing in the paper oil futures market, and the somewhat more subdued pricing in the physical crude market, especially for east of Suez cargoes.

Interestingly, the narrative the market is showing is only on the production side and does not account for the loss of demand from refineries as some Texas refineries have had poor refining margins.

At the moment, there are too many variables influencing the oil markets. On Monday, traders were assessing tensions between the U.S and Saudi Arabia as the report on the death of Jamal Khashoggi might lead to sanctions on Saudi Arabia. Saudi Arabia might take this into context and pump more in the interim.

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READ: How Nigeria can make more money from Oil?

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Will there be an increase in oil production?

Sources and various energy analysts believe the group will increase production by about 500,000-1 million barrels. Personally, I feel the figure will be close to 750,000 as Saudi Arabia might not roll over their 1 million cut promise to the market. Also, no one will want another March Madness as we witnessed last year so the best strategy is to appease all parties.

Additionally, in what we refer to as scratch-my-back diplomacy, the group will consider India’s request to reduce oil prices as the current prices are hurting economic recovery. Last month, India urged OPEC and allied oil producers to ease production as their economy battles higher gasoline prices.

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Conclusion

Nigeria needs more production capacity. India and Asia need cheaper oil. Russia wants production as they believe the markets are balanced. Saudi Arabia does not want to undo the great work it has achieved since its last meeting. In a game of musical chairs, someone will eventually lose a seat. Hopefully, Nigeria will not lose her seat and get additional barrels.

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Commodities

Oil prices stay on course over successful rollout of COVID-19 vaccines

The British-based oil contract, Brent crude surged by 0.46%, to trade at $62.99 a barrel, up from four days of losses.

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Oil prices gain likely to halt over demand uncertainty as US-China tension intensifies

Crude oil prices recorded early gains at the third trading session of the week. Oil traders are riding, on high hopes on progress made by COVID-19 vaccine rollouts in the world’s largest economy.

At the time of drafting this report, U.S. West Texas Intermediate (WTI) crude futures gained 0.3%, to $59.93 a barrel, partly recovering from the week losses.

Also the British-based oil contract, Brent crude surged by 0.46%, to trade at $62.99 a barrel, up from four days of losses.

However, it’s fair to say the bulls were not yet in full control as recent price action suggested capped gains.

Some oil pundits anticipate energy demand recovery is on the right track partly to the successful rollouts of COVID-19 vaccines at emerged markets.

That being said, Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on the rising oil stockpiles at the world’s largest economy, keeping oil bulls far from holding their grip,

“U.S oil stockpiles rose last week and product inventories fell sharply in a cause and effect of the cold snap that forced refiners to shut down Texas operations.

“The unexpectedly large crude inventories build hit at a worrying time for oil bulls. This is particularly significant on the rising possibility that OPEC major oil producers could agree to ease production cuts at a critical meeting this week amid concerns that demand will likely outstrip supply as the global vaccine-led recovery gathers a head of steam,” Innes said.

What to expect: Oil traders are anxiously waiting for Thursday’s OPEC+ meeting. It appears to represent some overdue caution going into the OPEC+ meeting as market participants continue to draw straws and attempt to gauge the likely rise in production.

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