Breaking News
Ad-Free Version. Subscribe now to follow markets, faster and distraction-free. Upgrade now
0
Ad-Free Version. Subscribe now to follow markets, faster and distraction-free. More details

Commodities Week Ahead: Oil Crashes To New Lows; Gold Glows As Hedge

ca.investing.com/analysis/commodities-week-ahead-oil-crashes-to-new-lows-gold-glows-as-hedge-200198712
Commodities Week Ahead: Oil Crashes To New Lows; Gold Glows As Hedge
By Barani Krishnan/Investing.com   |  Jun 03, 2019 12:31
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Will this be the week that West Texas Intermediate returns below $50 and Brent snaps $60 support?

It will be both unsurprising and fascinating were that to happen.

U.S. crude broke below $55 per barrel last week, making $50 the next logical test. The U.K. benchmark, meanwhile, came just 56 cents short of leaving $60 territory on Friday. So, it will not be surprising to see them make new lows this week.

WTI 300-Min Chart
WTI 300-Min Chart

WTI 300-Min Chart

All charts powered by TradingView

Yet it’ll be fascinating if the market indeed gets to such bottom. That’s because less than two months ago, WTI hit a 2019 high of $66.60 and Brent peaked at the year’s high of $75.60. Those highs came on the gush of OPEC-engineered production cuts and U.S. sanctions on Venezuelan and Iranian oil exports that gave crude gains of as much as 40% on the year.

Now, of course, all that positivity has vanished. In its place is gloom and doom caused by a dramatic escalation in the U.S.-China trade war and unexpected tariffs on Mexico by U.S. President Donald Trump.

Oil Narrative Now Led By Trade Wars, Not OPEC Cuts

While OPEC could announce deeper production cuts at its mid-year meeting to try and shore up the market again, the cartel’s dominant member Saudi Arabia seems to be having trouble convincing its main non-member ally Russia to contribute meaningfully to the plan, Bloomberg oil columnist Julian Lee said.

Lee said on Monday about OPEC:

“The group needs to show competence and unity of purpose if it really wants to put a lower limit on oil prices. Right now it seems they would struggle to organize a bun-fight in a bakery, even if they could decide when to hold it.”

Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, said the potential slowing of the global economy had been the narrative for oil over the last month, offsetting the OPEC cuts and geopolitical risk.

Said Chirichella:

“Most risk asset markets have been hit hard with the U.S. equity complex declining for the last five weeks in a row, putting a negative atmosphere over the oil complex as well as the broader commodity complex."

While “sell in May and go away” is a proven stock market adage, the S&P 500 for U.S. stocks fell just 6% last month versus WTI’s loss of 16% and Brent’s drop of 11%.

There was no reprieve in oil’s slide on Monday, with WTI less than $3 from returning to $40 levels. Brent, on its part, was less than $2 from making it to under $50.

On a more crucial technical level, both benchmarks broke below all key moving-day averages, collapsing from the 200-DMA to under the 5-DMA. By dollar value alone, oil has lost more than $14 on a barrel from a $24 gain accumulated since the Christmas Eve lows of last year, its bottom during the 2018 selloff. That's a loss of nearly 60%.

And it’s not just trade wars that are pulling oil lower. Demand for crude has also been far from impressive.

U.S. crude oil inventories decreased by just 0.28 million barrels in the week to May 24, compared to a forecast draw of 0.86 million barrels, data showed. In the two previous weeks, there were back-to-back builds of around 5.0 million barrels.

Oil bulls typically count on strong refinery runs and heavy gasoline consumption in the run-up the summer. But refiners have been slow to draw down crude in the run-up to this summer as profit margins for producing gasoline were running about 30% below year-ago levels.

Goldman Sachs (NYSE:GS) (NYSE:GS) noted among other things that "weaker activity indicators have finally caught up with oil market sentiment".

Said the Wall Street bank:

"The magnitude and velocity of the move lower were further exacerbated by growing concerns over strong U.S. production growth and rising inventories.”

The U.S. Energy Information Administration said in last week’s oil supply-demand report that U.S. production was back to record highs of around 12.3 million barrels per day, after falling off in recent months. The U.S. oil rig count, which reflects future production, also rose last week for the first time in four weeks, signaling higher output to come.

Even so, not all are bearish about oil, it appears.

A Reuters survey published on Monday showed Brent likely to hold near $70 for the remainder of the year due to what was termed as “elevated supply risks in the Middle East”.

The monthly survey of 43 economists and analysts forecast that the U.K. benchmark will average $68.84 in 2019, little changed from the previous poll’s $68.57 consensus.

Gold Going Stronger Into $1,300

Like oil, gold too is likely to have an eventful week. In the precious metal’s case, it will be whether it gets to build strongly on the $1,300 level it recaptured last week to reach highs above $1,330.

In Monday’s early Asian trade, spot gold, reflective of trades in bullion, hit a 10-week high of $1,312.85.

Gold Daily Chart
Gold Daily Chart

Gold Daily Chart

Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, reached $1,317.75, the highest since the week ended March 24.

The path of least resistance in gold seems to be higher, with genuine fears about the economy driving demand for the safe haven—a flip from recent weeks when the U.S. dollar was the preferred hedge to the trade war.

Commodities Week Ahead: Oil Crashes To New Lows; Gold Glows As Hedge
 

Related Articles

Andy Hecht
What’s Wrong With Gold? By Andy Hecht - Mar 01, 2021

This article was written exclusively for Investing.comCommodities rising to new highs daily Gold lagging other precious metals Gold is resting, consolidating, and preparing for its...

Peter Krauth
A Golden Election Promise By Peter Krauth - Nov 03, 2020 1

There’s no shortage of prognostications or conjecture about the U.S. election. Of course, everyone has an opinion. Some like red, some like blue, some like neither. Last week’s...

Commodities Week Ahead: Oil Crashes To New Lows; Gold Glows As Hedge

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email