Energy & Precious Metals - Weekly Review and Calendar Ahead

By Barani Krishnan

Investing.com - Is the world underestimating the demand for oil amid the new explosion in coronavirus cases? Latest International Energy Agency stats suggest so, with the IEA forecasting more consumption that could help rebalancing. OPEC, meanwhile, is going the opposite way, calling for higher output from end-August that could lead to a tug-of-war in prices.

The Paris-based IEA raised its demand forecast to 92.1 million barrels per day this week, up 400,000 bpd from its outlook last month, after citing a smaller-than-expected second-quarter decline in consumption.

The IEA was one of the drivers for this week’s gains in oil. The agency’s outlook on oil has typically been dour over the past few years, putting it at odds with the Saudi-dominated OPEC— or Organization of the Petroleum Exporting Countries — whose members are determined to keep crude prices supported under any condition.

That the IEA would predict a positive number for oil demand as the world remains gripped by the fear of more economic fallout from the new wave of Covid-19 was startling.

Less surprising was a report that an alliance of crude producers led by Saudi Arabia was pushing OPEC and others tied to the group to increase oil production, beginning August. Officials in the group said the pressure came amid signs that demand was returning to normal levels following coronavirus-related lockdowns.

Key members of the Saudi-led and Russia-assisted OPEC+ are set to meet via web conference Wednesday to debate the group’s current and future production.

In April, Saudi Arabia, the world’s largest oil exporter, led a push that saw the 23-producer group cut its collective output by 9.7 million barrels a day, as the pandemic led to a collapse of oil demand.

Now Saudi Arabia and most participants in the coalition support a loosening of the curbs, the delegates said. Under a Saudi proposal, OPEC+ would relax its current curbs by 2 million barrels a day to 7.7 million barrels a day, the delegates told reporters.

A surge in new coronavirus cases in the United States, meanwhile, tempered expectations for a fast recovery in fuel consumption, even as vaccine development works make progress.

Record high U.S. infection numbers in a day have cast doubts over the pace of economic reopenings from lockdowns, as well as the resumption of school in the fall season.

COVID-19 deaths in the United States have started to slowly rise again, following a surge in newly diagnosed cases beginning in the middle of June.

New spike in fatalities are the largest in the two most populous states, California and Texas. And while infectious disease specialists are hopeful that the number of deaths won’t grow to match the carnage seen in New York State back in April, where the death toll peaked at around 1,000 per day, it’s unclear how quickly deaths may rise in the worst affected states in the coming weeks.

On the precious metals front, gold is in a somewhat-strategic-yet-not-too-assuring ground of just above $1,800 an ounce, as the safe-haven hopes to make a strike at all-time highs above $1,900.

Since the financial crisis, the movement of gold prices has been a near-mirror image of movements in the yield on 10-year Treasury inflation-protected securities, which this week touched a seven-year low of minus 0.78%, the Wall Street Journal noted on Friday that the ratio between the two assets’ price moves has varied, but the relationship hasn’t broken meaningfully during the past decade.

Some like ABN AMRO analyst Georgette Boele are already looking beyond $1,900 for gold, seeing for 2021 prices around $2,000 an ounce.

Energy Markets Review

Crude prices jumped more than 1% on Friday after the International Energy Agency bumped up its 2020 demand forecast for global oil demand, lifting a market that took its worst hammering in six weeks in the previous session.

New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled up 94 cents, or 2.3%, at $40.56 per barrel.

London-traded Brent, the global benchmark for oil, settled up 92 cents, or 2.1%, at $43.27.

For the week, WTI rose 0.7% while Brent rose 1%.

Aiding the IEA’s outlook on crude was a slight weekly drop in the U.S. oil rig count and positive news on Covid-19 vaccine development.

The weekly survey of rigs actively-drilling for oil in the United States fell by four to 181, indicating that crude production was still somewhat under control despite recent trends indicating higher output.

On the vaccine front, Gilead Sciences (NASDAQ:GILD) released data on Friday showing its antiviral drug, remdesivir, cut the risk of death for severely sick coronavirus patients by 62% compared with standard care alone, sending its shares up more than 2%.

Biontech also delivered positive news in the race of a vaccine, with CEO Ugur Sahin reportedly claiming the company could have a treatment ready for approval by December, according to the Wall Street Journal

Energy Calendar Ahead

Monday, July 13

Private estimates on Cushing oil inventories from Genscape.

Tuesday, July 14

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, July 15

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, July 16

EIA weekly report on natural gas storage

Friday, July 17

Baker Hughes weekly survey on U.S. oil rigs

Precious Metals Markets Review

Gold prices fell a notch Friday but that didn’t stop the yellow metal from cruising to a fifth straight weekly gain, boosted by U.S. stimulus measures to deal with the coronavirus pandemic and surging new global infections from the virus.

U.S. gold futures for August delivery on Comex settled down $2.25, or 0.1%, at $1,801.55 per ounce. The contract hit $1,829.80 on Wednesday, its highest since September 2011, when it scaled to a record $1,911.60.

Spot gold was down $4.25, or 0.2%, at $1,799.30 by 3:45 PM ET (19:45 GMT). The real-time indicator of bullion prices scaled $1,809.22 earlier on Thursday, a peak since September 2011, when it hit a record high of $1,920.85.

For the week, August gold rose 0.8% while bullion gained 1.4%.

“Gold’s short-term outlook remains very bullish as tensions will likely increase next week between the world’s two largest economies, investors brace for large layoff announcements as banks kick off earnings season, and the COVID-19 spread in US and Latin America still do not show any signs of plateauing,” said Ed Moya, analyst at New York’s OANDA.

Record high U.S. coronavirus infections in a day have cast doubts over the pace of economic reopenings from lockdowns, as well as the resumption of school in the fall season.

Latin America and the Caribbean have become “a hot spot” for the COVID-19 pandemic, with several countries now having one of the highest per capita infection rates and absolute number of cases in the world, U.N. Secretary-General Antonio Guterres said Thursday. A 9.1% contraction in GDP was expected this year in the region, which would be the “largest in a century,” said a video and briefing report by the U.N. chief.

Related Articles

Iran will develop oil industry despite U.S. sanctions - Zanganeh says

Gold Streaks On for 5th Week as Stimulus, Virus Worries Come to Fore

Supreme Court ruling on Oklahoma tribal land raises questions for oil industry