Energy & Precious Metals - Weekly Review and Calendar Ahead

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Energy & Precious Metals - Weekly Review and Calendar Ahead

By Barani Krishnan

Investing.com --The United States had its worst week for COVID-19 cases, deaths and hospitalizations. The oil market saw a total build of 25 million barrels in crude, gasoline and distillate stockpiles. Yet, oil bulls chased crude prices to 9-month highs, on the notion that vaccines will sort everything out.

In the distorted lens of oil longs, the “now” in the pandemic is lost in the la-land land of what the “future” could be for human health, travel and energy consumption.

The most ardent believers of higher oil prices are betting that people everywhere will soon be able to jump on a plane or any form of mass transit or travel to go anywhere, anytime, as millions of doses of coronavirus vaccines reach the world over the course of the next few weeks, after being approved by relevant health authorities.

The truth, of course, is more complicated than that. 

As much as Pfizer-BioNTech, Moderna (NASDAQ: MRNA ) and other vaccine makers are certain of delivering a knockout blow to the COVID-19, an immunization of this scale hasn’t been undertaken before — not in the United States, not in Canada, not in Britain, or not anywhere on the planet.  

Frontline workers inside New York hospitals are currently experimenting with best practices, from delivery and circulation to timing and storage. 

Some states like Arizona are simulating what the drive-through process will look like when patients are able to receive the vaccine. 

For those on the frontlines, every day of rehearsal counts, because when “V-Day” comes, mistakes will be costly.

Refrigeration of the doses, particularly, is vital. The units used for storage need to be some 80 to 90 degrees Fahrenheit below zero. Hospitals are now conducting eleventh-hour checks to make sure their freezers are in working order.

“We get it here in the pharmacy, we have to empty the box within 90 seconds and open the freezer,” said Vivian Leonard, director of pharmacy for Mount Sinai Health System. “If something goes wrong, it’s not an easy replace. Other times we’ve had freezers or refrigerators that don’t work, we can replace the drug — in this case, we can’t.”

In the meantime, Covid-19 statistics are reaching super-alarming levels. In the United States, case counts have reached 16 million — up from 15 million less than a week back — with almost 300,000 people now dead. 

Health authorities warn that hospital systems are at risk of being overrun again, just like at the height of the pandemic in the spring. Some mortuaries are overfilled, like in April, and refrigerated trucks have been brought in to store bodies. Globally, there are more than 71 million cases and 1.6 million deaths.

But none of these intricacies seem to matter to the hedge funds and algorithms in oil that have been incessantly pushing prices higher the past six weeks.

“The bullish tone is likely to continue amid hopes the pandemic can be brought under control with vaccines next year," Kazuhiko Saito, chief analyst at Fujitomi Co, said in his summary 

Still, he adds: "The recent rally looks to be overdone from a fundamental point of view, given rising oil output in Libya and the United States with weaker fuel demand across the globe." 

Most jarring was the most recent week’s jump of as much as 1.5% despite the U.S. government reporting monstrous inventory builds. 

Domestic  crude stockpiles rose by 15.2 million barrels for the week ended Dec. 4, the Energy Information Administration said, versus analysts' expectations for a 1.42 million-barrel drawdown instead.  

Distillate stockpiles , which include diesel and heating oil , rose by 5.2 million barrels during the week ended Dec. 4, against expectations for a 1.41 million barrel increase, the agency’s data showed.

U.S. gasoline inventories rose by 4.22 million barrels last week the EIA said, compared with expectations for a 2.27 million-barrel build.

But oil’s most optimistic investors swept aside the bearish EIA report, barely allowing WTI prices to fall in Wednesday’s trade. In doing so, they gave little or no consideration to whether such inventory spikes will become more common during the fall-to-winter season when demand for oil is typically lower — what not with the lingering impact of the Covid-19 adding to the slack in fuel consumption now.

“The  U.S. inventory data showed a 25 million total build in stocks (but) was ignored,” Scott Shelton, energy futures broker at ICAP (LON: NXGN ) in Durham, North Carolina, noted in his Thursday commentary on oil, a day after the EIA report. 

On the contrary, the inventory spike appeared to have “given additional hope to the bulls and sent the shorts even more to the sidelines,” said Shelton, an oil bull himself, who seemed stunned by the market’s strong upward bias.

Not all are convinced that oil prices will continue having a V-shaped recovery in the coming year, pointing to ramping Libyan production and a quick, potential return of Iranian oil once President-Elect Joe Biden eliminates sanctions on Tehran imposed by his predecessor Donald Trump.

Sensing the volatility ahead, Moody’s forecast a lower range of between $40 and $45 for Brent in 2001. 

“Modest improvement in 2021 oil prices will not lead producers to boost capital investment, while fuel demand will rise but not to pre-downturn levels,” the rating agency said.

Investors in gold, meanwhile, had a rollercoaster of a week, eking out a weekly gain, as talks in the U.S. Congress for a COVID-19 fiscal stimulus package hung in the balance.

In Friday’s negotiations in Congress, Republicans in the Senate, led by Majority Leader Mitch McConnell and aligned to outgoing president Trump, continued to frustrate attempts by Democrats in the House of Representatives to add state and local aid to the package. 

On their part, the Democrats, led by House Speaker Nancy Pelosi and backing President-Elect Biden, were against Republican efforts to add liability protections for institutions under the pandemic.

“McConnell is not budging on liability protections and remains resistant on providing aid to state and local governments,” said Ed Moya, analyst at New York’s OANDA. “This week was supposed to deliver a breakthrough in negotiations and not have talks get pushed into next week.”

The coming week could remain edgy for gold, though Moya said a plethora of risk events could lend support to the yellow metal.

Energy Review 

New York-traded West Texas Intermediate , the leading indicator for U.S. crude, last traded at $46.55 per barrel, after officially settling Friday’s session down 21 cents, or 0.5%, at $46.57. 

For the week, WTI rose 0.7%. On Thursday, it hit a nine-month high of $47.73, a dramatic reversal from minus $40 levels hit in April, with the advent of the Covid-19. 

London-traded Brent , the global benchmark for crude, last traded at $49.98 per barrel after officially finishing Friday’s trade down 28 cents, or 0.6%, at $49.97. 

For the week, Brent rose 1.5%. On Thursday, the U.K. crude grade hit a March high of $51.05 on Thursday, crossing the $50 mark the first time since the pandemic-induced market crash that took Brent below $15 per barrel in  April.

Oil prices have been on a tear over the past six weeks, with the U.S. crude benchmark gaining almost $11 or 31% in that span while its U.K. peer rose nearly $13 or 35%.

Energy Calendar Ahead

Monday, Dec 14

Private Cushing stockpile estimates

Tuesday, Dec 15

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Dec 16

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories  

Thursday, Dec 17

EIA weekly report on natural gas storage

Friday, Dec 18

Baker Hughes weekly survey on U.S. oil rigs

Precious Metals Review

Gold for February delivery on New York’s Comex last traded at $1,843.70 per ounce after officially settling Friday’s trade up $6.20, or 0.3%, at $1,843.60 an ounce. 

For the week, February gold rose 0.2%, after rising $33 on Monday to a three-week high of nearly $1,880 before tumbling almost $40 in the next session.

The spot price of gold , which algorithms and hedge funds use to decide the direction in futures, settled with a smaller gain than the February gold contract. Spot gold last traded at $1,839.60 per ounce after officially settling Friday’s trade up $3.72, or 0.2%, at $1,839.03.

Gold turned volatile as agreement for a COVID-19 economic stimulus remained out of reach. 

Congress originally passed in March the Coronavirus Aid, Relief and Economic Security (CARES) Act, dispensing roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid for qualifying citizens and residents.

In the past few months, however, Democrats in Congress have been locked in a bitter debate with Republicans in the Senate on a successive relief plan to the CARES Act. The dispute has basically been over the size of the next stimulus as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid. 

The stalemate appeared broken last week after a bipartisan group of Democrats and Republicans proposed a $908 billion relief bill, which led the two sides to resume negotiations.

Stimulus and other monetary expansion exercises typically fuel inflation, boosting gold, which serves as a hedge.

 

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