Energy & Precious Metals - Weekly Review and Calendar Ahead

Energy & Precious Metals - Weekly Review and Calendar Ahead

Investing.com  | Jan 26, 2020 07:20

Energy & Precious Metals - Weekly Review and Calendar Ahead

By Barani Krishnan

Investing.com - The oil bears and gold bugs are back. The question is how long their host - the coronavirus - lets them stay.

For weeks, WTI at above $55 and Brent at north of $65 had felt as unreal to some crude traders as the daily record highs on Wall Street. To some, of course, oil’s continued upside from 2019 was more than justified. And they may be right.

Supply risks are higher now than a year ago, with OPEC+ pledging 75% more production cuts this quarter than in Q1 2019. Also, tensions are still bubbling in Iran and other production hot spots like Iraq and Libya. Then, there’s the super-hyped U.S.-China phase one deal and what that could mean - particularly for Chinese oil demand, which is the highest in the world.

Yet, the global health scare brought on by the coronavirus is threatening to turn the whole bullish argument for oil on its head. Just for perspective, consider this: Within 24 hours, China’s official death toll from the virus jumped from 26 to 41, killing even a doctor who had been at the frontline of the battle to contain the epidemic.

There’s more: About 1,400 people have been infected globally, the vast majority in China. Wuhan, the Chinese city at the epicenter of the outbreak, is in virtual lockdown, with medical supplies and hospital beds running out and there is a clampdown on at least 10 neighboring cities. Hundreds of millions of Chinese travelers are stranded amid the country’s biggest festivity, the Lunar New Year, and the tourism and leisure industries are suffering big with Shanghai Disneyland, all cinemas, even some McDonalds, closed.

Outside China, 10 countries have reported infections from the virus - namely Australia, France, Japan, Nepal, Singapore, South Korea, Taiwan, Thailand, Vietnam and the United States. The World Health Organization has stopped short of declaring the crisis an international concern, despite calling it an "emergency in China".

And a lot more could have happened between the time I finished writing this and the moment you began reading. The logical question to ask, therefore, is what actual impact could all these have on the global economy and the demand for energy, and how long could this crisis linger? The answer is no one really knows.

The best comparison experts have so far to the coronavirus is the SARS health epidemic from 2003, another China-originated global health scare that also caused major market disruptions. An estimated 8,000 people were infected with the so-called Severe Acute Respiratory Syndrome, and nearly 800 died. China’s economy fell by 5 percentage points.

Some think the coronavirus has created more panic than warranted, and will come to pass like other infections, strengthening the world economy eventually. Yet the ease at which the virus has spread, and the trail of havoc it has left in China, have left markets assuming the worst.

The S&P 500 fell nearly 1% on Friday, its most in a day since October, indicating that Wall Street's months-long resilience against rival stock markets might be threatened.

While the potential impact of the virus remains a guess, one thing's certain: The longer China remains in crisis, the greater the challenge for Donald Trump - who stands for re-election in November - to compel Beijing to deliver on the phase one.

As for oil itself, the holy grail of demand is China, with Beijing consuming more than 9 million barrels per day last year, or almost 90% of the equivalent of Saudi production.

In precious metals, much of gold's upside in the near-term will depend on whether Wall Street continues to swoon. If the safe-haven resurgence from late last week becomes a trend, then $1,580 will be the near-term target before an eventual return to December’s seven-year highs above $1,600.

Energy Review

Oil prices tumbled a fifth straight day on Friday, pushing Brent to its worst week in 13 months, as contagion fears over the new coronavirus led to fresh risk aversion in global markets.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down $1.15, or 2.1%, at $55.59 per barrel. Earlier in the session, WTI sunk to 53.88, its lowest since the week of Nov. 17.

London-traded Brent, the global crude benchmark, settled down $1.35, or 2.2%, at $60.69. Brent hit a seven-week low of $60.26 earlier, almost snapping the key $60 support.

For the week, WTI lost 5%. For January so far, U.S. crude was down almost 9%, putting it on track to its biggest monthly loss since the 16.3% decline in May.

In Brent’s case, the global crude benchmark lost 6.4% on the week, its worst since December 2018. Month-to-date, Brent was off by 8% for its biggest losing month since May.

“The Coronavirus remains a major issue for the market to buy this dip and I think that there can be additional selling seen,” Scott Shelton, energy futures broker at ICAP in Durham, N.C., said.

The Economist Intelligence Unit said in a report Thursday that the virus could shave between 0.5 to 1 percentage point off China’s gross domestic product growth this year against a baseline forecast of 5.9 per cent.

On the energy front, the outbreak has already downed demand for 200,000 barrels of refined oil products, estimated Claudia Galimberti of S&P Global Platts. In China’s Hubei province, where the disease was first noted, the shutdown of transportation has probably eliminated about 50,000 to 70,000 barrels a day of demand, Galimberti noted.

Separately, Goldman Sachs said on Tuesday that it anticipated a 260,000-barrels-per-day negative shock to global oil demand on average, including a 170,000-bpd loss of jet fuel demand, from the 2019-nCoV. Its analysis was based on comparison with the 2003 SARS health epidemic which shook global markets, including oil.

Switzerland-based oil risk consultancy PetroMatrix, founded by veteran trader/analyst Olivier Jakob has termed the virus the “Black Swan event of 2020”. That puts it on par with global market disruption events like the 1997 Asian Financial Crisis, the 2000 Dotcom Crisis, the 2001 Attacks on the U.S., the 2008 Global Financial Crisis, the 2009 European Sovereign Debt Crisis, the 2014 Oil Market Crash and the 2016 Brexit.

Energy Calendar Ahead

Monday, Jan 27

Genscape Cushing crude stockpile estimates (private data)

Tuesday, Jan 28

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Jan 29

EIA weekly report on oil stockpiles

EIA weekly natural gas report

Friday, Jan 31

Baker Hughes weekly rig count.

Precious Metals Review

There’s nothing like a global contagion to get gold buyers to pile back into the safe-haven. The yellow metal hit two-week highs on Friday, creeping towards the $1,580 per ounce level targeted by gold bugs, on worldwide fears over the economic fallout to the coronavirus.

Gold futures for February delivery on New York’s COMEX settled up $6.50, or 0.4%, at $1,565.90 per ounce. It earlier reached $1,575.25, a peak since Jan. 8, as gold bugs appeared to shoot for a test of the $1,580 resistance.

Spot gold, which tracks live trades in bullion, was up $8.66, or 0.6%, at $1,571.69 per ounce, after a two week high at $1,575.83.

Gold had initially been slow to react to potential economic fallout from coronavirus, but caught up between Thursday and Friday.

“In retrospect, it seemed like the virus situation was prodding bulls back into long positions yesterday afternoon,” The Hightower Report said in its precious metals report, adding that if the situation continued, gold bugs could expect an “upside extension from classic short covering (stop loss) buying”.

Related News

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Polski Português (Portugal) Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 中文 香港 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+