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Energy and precious metals – weekly review and calendar ahead from Investing.com

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From Barani Krishnan

Investing.com – A year ago, Prince Abdulaziz bin Salman complained that “psychological factors” and “extremely negative expectations” hampered the oil market, despite “very limited impact on global oil demand.” But this week, it was the Saudi oil minister who tried to limit expectations in the oil market.

Asked why he again refused to allow his kingdom and 22 other OPEC + companies to embark on a significant production campaign in April, Abdulaziz cited new Covid-1

9 restrictions in Milan, Italy, citing a pandemic nightmare a year ago that wiped out a fifth of global oil consumption. As the world now explodes with optimism about recovery in everything, the prince, referring specifically to the demand for oil, said: “I will believe when I see it.”

It is interesting, of course, how the virus has brought to its knees one of the most complacent men in the oil industry. Not long ago, the prince had dared to make Hollywood Bears Dirty Harry-style, no less, “make my day.” He issued the warning in mid-September, only to tacitly swallow a 15% drop in prices a month and a half later (a breakthrough in Pfizer’s vaccine will be needed in November to restore his wounded pride and set prices for Pfizer). oil on a road that was unmistakably higher).

More interestingly and subsequently, the market again does not trust Abdulaziz – although this time the distrust works in his favor. Minutes after the release of OPEC + on Thursday, oil prices jumped by 5%. They barely fell (well, they did 1%) from the end.

Despite the recent oil rally, the Saudi oil minister’s hesitation to increase production is remarkable. The global recovery of fuel demand was weak, although the 10-month cuts in OPEC + drained much of the oil oversaturation from a year ago and brought stocks to the so-called. OECD or developed countries to what the industry calls ‘normal’ five-year levels.

OPEC, Saudi Arabia’s 13-member organization, led by Saudi Arabia’s oil-exporting countries, minus its 10 Russian-led allies that would make the expanded OPEC + group, could add an additional 1.4 to the oil market. million barrels per day.

Still, Abdulaziz chose to make the mistake of caution by releasing his own OPEC advisers, who called for greater demand for a harsh and rapid economic recovery from Covid-19 vaccinations. If we were to heed the Minister’s warning about oil bears six months ago, we must heed his deepest fears of demand.

But hedge funds and other market speculators do not like to hear advice that contradicts their positions. So, the oil rally continues at the same rate we’ve been seeing since late October, adding an average of 5% a week for the past 18 weeks.

During my 25 years of observing the oil market – or, in this respect, any market – I realized one thing: speculators can never be satisfied with something good. Once thrown, they will not stop until they destroy what they are doing, neither themselves, nor both.

The problem is that oil, unlike any other asset, has major consequences for the world economy, as a resource that literally drives and drives the world. There are serious consequences of too high or low raw material prices, and history abounds in periods of both.

The impact on oil from the 1973 Arab embargo and the 1990 Iraq war is well documented. For the modern context – and to include the emergence of fund managers in raw materials – let’s look at 2000 years.

We saw how $ 147 a barrel helped provoke the financial crisis. In later years, crude oil of $ 100 per barrel and above helped create the shale revolution (some call it the monster), which brought the market down to $ 25 by 2016. We also saw the madness of minus 40 per barrel in the height of the Covid -19 and how this could never be sustained in the real world – in this case the damage done to shale and oil production in the US as a whole since then.

Now, in just over four months, we have seen an 85% rally in an economy that has barely emerged from the forest of the pandemic. At the pace we are following, some Wall Street banks are whispering a return to three-figure pricing. Let’s stop pretending that there is a limit to the greed of oil bulls – or in this case oil bears. The real problem, however, is inflated fuel prices.

At more than $ 3 a gallon – to which US gasoline is moving – the US economy could find itself in a situation similar to stagflation, where price pressures are growing incredibly faster than GDP and employment. High oil prices can do this.

Jobs are the first to go into recession and usually the last to return in recovery (the Obama years are proof). came higher than expected. However, the unemployment rate has barely changed and remains at 6.2%.

President Joe Biden’s $ 1.9 trillion relief plan adopted on Saturday could be a potion for recovery. But while that stimulus seemed inevitable earlier this week, the Federal Reserve said the country is unlikely to see maximum employment this year or soon. That is why Abdulaziz is right, concerned about the demand for oil.

But the Saudi oil minister also retained some confidence when he predicted this week that shale would never be a problem for OPEC again. “Drilling, darling, training is gone forever,” the prince told Bloomberg, referring to a phrase often used to describe fruitful activity in American shale.

At first glance, he looks right. Shale production is down by a third from its record highs in 2020, and active oil drilling has risen by less than 50 this year. The facilities are now at 310 from a high of 683 in March 2020. But the facilities also recovered from their lowest level in August of 172. Abdulaziz has made a calculated bet that US drilling will want to win with fewer barrels and will not flood market as before.

As Bloomberg notes, the Saudis often underestimated shale, which year after year produced more than expected. From a low of less than 7 million barrels per day in 2007, total U.S. oil production more than doubled to a record nearly 18 million barrels per day by early 2020, forcing OPEC to cede market share.

In addition, too much is being done of Biden’s green energy program and Armageddon, which is supposed to be for shale. It is true that the president froze the Keystone pipeline project on his first day in office (a decision I do not agree with). Yet he did not ban fracking at all – contrary to the misconceptions of many (who like to maintain this story because it helps to narrate higher oil prices).

What Biden has done to a large extent is the freezing of new drilling contracts for public lands and seawater. According to federal data, only 5% of US raw material is extracted from wells in these areas. Meanwhile, the fracking of the entire private land continues unhindered. Breaking through or not training actually comes down to pure economics. Thus, the raw material over $ 65 can do more for shale than the Saudi minister and the oil bulls believe.

On the part of precious metals, gold experiences the opposite state of oil. Gold futures reported a third consecutive weekly loss after falling to lows in April. At about $ 1,700, the yellow metal is 10% lower for the year, down 19% from a record high of nearly $ 2,090 in August.

Already in a slow melting, this week gold was again absorbed in routing in the stock market, despite the so-called situation as an inflation hedge. The forthcoming Senate passage expected by President Joe Biden’s $ 1.9 trillion Covid-19 relief bill, which should provide the United States with a bigger budget deficit and higher debt to GDP – all good for gold, was also ignored. The decline in gold this week is due to the same phenomenon in the last two weeks – the rising yield on bonds and the dollar.

Yields and money rose again this week after Federal Reserve Chairman Jerome Powell said the central bank was unlikely to step up bond purchases to allay fears of a sudden jump in inflation from the US economy, which is increasingly shaken by Covid-19.

While gold itself has been advertised and used as a hedge against inflation for decades, this quality has been playing for months in the markets. It remains to be seen whether Biden’s stimulus bill will give him the lift he needs next week.

Overview of oil prices and the market

Trading in New York, the benchmark for US crude oil, made a final trade of $ 66.26 on Friday. He officially settled the session at $ 66.09, an increase of $ 2.26, or 3.5%, during the day. For the week, WTI has grown by almost 7.5%. It also reached a 13-month high of $ 66.40.

Trading in London, the global oil index, traded final at $ 69.54 a barrel on Friday. He officially settled the session at $ 69.36, which is $ 2.62, or 4% for the day. For the week, it grew by almost 5% and also reached a 13-month high of $ 69.57.

The New York traded final exchange of $ 2,075 per barrel on Friday. It previously settled at $ 2,065 per gallon, ending its first week over $ 1 a gallon after settling at $ 2,047 for the week ended May 10, 2019. For the week, RBOB gasoline gained 10%, extending to almost 47% of your year to-date rally.

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Overview of gold prices and markets

in New York Comex made a final deal of $ 1,698 on Friday. He officially settled the session at $ 1.10, or less than 0.1%, at $ 1,701.80 an ounce. For the week, however, it fell by 1.5%, prolonging the decline from last week by 2.7% and the decline from the previous week by 2.5%. In Friday’s session, it fell to $ 1,684.05 – the lowest price since April 2020 of a reference gold futures contract.

, which reflects real-time bar trading, was set at $ 1,699.92, or $ 2.49 or 0.2%. For the week, it lost 1.9%, prolonging the decline of 2.7% last week and the decline of 2.3% the previous week. Hedge funds and other money managers sometimes rely more on the spot price than on futures to determine the direction of gold.

Disclaimer: Barani Krishnan does not take a position in the raw materials and securities he writes about.

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