OPEC’s enhanced transparency with output cuts to prove the oil market isn’t glutted, and increasing optimism that Washington and Beijing could strike a trade deal despite their lingering differences, will help oil bulls make a fresh push for $55 U.S. crude this week.
On the precious metals side, palladium's stature as the planet’s most valuable traded metal could get dented if analysts are right about the auto-catalyst metal being overdue for a correction, after gains of about 70 percent from August and nearly 10 percent this month.
In oil, the Organization of the Petroleum Exporting Countries (OPEC) has boosted its campaign to disprove talk that its members aren’t united or contributing to pledged cuts by publishing the output of each country that is part of the OPEC+ alliance, including non-OPEC members such as Russia and Malaysia.
Dominick Chirichella, director of risk and trading at the DTN-owned Energy Management Institute in New York, said:
“The release of (country-)specific cuts by OPEC is sign that they are very serious in attempting to get global supply and demand back into balance and push inventories into a sustainable destocking pattern.”
“Strong Buy” Seen Till WTI Hits $60
U.S. West Texas Intermediate crude hit a six-week high of $53.90 on Friday and rose as high as $54.38 in Asian trading Monday. The daily outlook for WTI on Investing.com is a “Strong Buy,” with technical analysts calling for a “Sell” only when its current 50-Day Moving Average reaches the 100-DMA of $60. New York floor trading of U.S. crude futures will be closed on Monday for the Martin Luther King holiday and will reopen Tuesday.
Adding octane to Friday’s trade were reports that China, the world's largest oil buyer, had offered to increase annual imports from the U.S. by more than $1 trillion to end their trade war. But Trade Representative Robert Lighthizer was also said to be cool on the offer, as Beijing planned to increase its purchases over a six-year period, whereas the Trump administration wants action more quickly.
The OPEC and China initiatives aside, bulls betting on $55 U.S. West Texas Intermediate crude got some help at home when weekly rig count data from industry firm Baker Hughes showed a drop of 21 rigs, the biggest weekly drop in nearly three years.
The decline in drilling activity raises questions on whether the U.S. shale boom that has been blamed for the current oversupply, as well as the 2014-17 glut, will continue its relentless spike, especially after the U.S. Energy Information Administration said last week it expected domestic production to hit new record highs of 13 million barrels per day by 2020, way above Saudi and Russian output.
Shale Remains An Enigma Though
New York-based Energy Intelligence noted in its weekly newsletter that shale’s evolution has kept the sector an enigma, complicating OPEC’s efforts to manage supply, as well as the market’s ability to send appropriate price signals for investment in production growth.
The consultancy’s Petroleum Intelligence Weekly added:
“Shale will set bookends of sorts for oil prices, with gyrations between roughly $50 and $80 determined partly by the degree to which shale producers scale back or expand. But we also see the stage set for shale becoming less price-sensitive, as development shifts further toward larger scale operations in the hands of majors and large independents.”
With palladium, a chorus is growing that the market may see a significant correction after its spot price crossed last week into the $1,400-per-ounce zone, though some still believe the metal may rise further to $1,500. Investing.com’s daily outlook on spot palladium is a “Strong Buy,” with the strongest Fibonacci resistance seen at $1,480.13.
Palladium’s Correction Could Take It Back To $1,250
Since surpassing gold's 2019 peaks of above $1,300 on January 4, palladium's spot price has renewed highs at the top, culminating in Thursday's run above $1,400 for the first time.
Palladium's run-up has been fuelled by stimulus measures aimed at boosting car ownership in China. Also helping was a projection by Metals Focus Ltd. that supplies will remain in deficit this year for an eighth straight year.
Walter Pehowich, industry analyst and executive vice-president at Dillon Gage Metals in Addison, Texas, said the wide-ranging 2019 supply shortfall of 250,000-1,000,000 ounces forecast for palladium shows a market high on froth and low on facts.
Said Pehowich: "Looking at how high far we have progressed and how fast, the price of palladium is way overdue for a correction, especially if the news stories start to dry up" regarding a supply shortage. He added:
"If fresh metal comes into the market place ... a sell-off could occur. And that’s what I expect to happen.”
Philip Streible, senior market strategist for precious metals at RJO Futures in Chicago, also thinks a violent reversal may happen to palladium although it “could easily push past $1,500."
He added: “I expect it come down to more normalized levels closer to the $1,250 area. A small crash could probably kick a lot of people off-guard."