Energy & Precious Metals Weekly Update & Forecast By Investing.com
© Reuters.
Barani Krishnan
Investing.com – So how low can it fall this week?
Let’s not kid ourselves that this is not what every crude oil trader wants to know, although those in long positions will also be wondering if a bounce would be adequate and fast enough to make up for what happened on the just ended week.
I think it’s safe to say that a 13% loss in a week — the worst since the pandemic — was not something even in the oil bears’ wildest fantasies. But now that they have it, those shorting the market will be wondering how much lower they can take it.
If my resident technical charter Sunil Kumar Dixit is right—and I have no reason to doubt it—the price of U.S. oil, which settled at $66.74 a barrel on Friday after a 15-month low of $65.27 , could drop below $60. in the short term.
“If we deviate from the $62 level and selling picks up, expect a drop to major support at the 100-month SMA of $58.90,” Dixit said, referring to the simple moving average marker for WTI.
But Dixit also believes oil prices could bounce back, even back to their most recent $70 level before falling below $58.
“There is a strong possibility of a technical jump from current lows,” he said. “If it doesn’t happen right away, it could happen when the $62 and $58.90 support areas are reached. We have initial rebound targets at $69.20 and $71.50. We believe the technical rebound will either start from the current lows of $65 as WTI has already tested the 200-week SMA of $66.18.”
Something else is happening this week that has serious implications not only for oil, but for all markets, and it cannot be ignored: the Federal Reserve on Wednesday.
At the meeting on March 22, the Fed will hold another increase of 25 basis points. Wall Street, of course, wants the central bank to stop all interest rate hikes so they can raise another 500 points. The Fed is warning that further tightening of monetary policy could lead to a new financial crisis, like in 2008. This warning is an emotional blackmail under another name, as the central bank is being told that the banking crisis is entirely to blame for it, not reckless risk-taking. CEOs of financial firms that have gone bankrupt.
The banking crisis also contrasts with what is being described as a real oil supply and demand crisis. Day after day, we hear the oil bulls refrain about how precariously limited supply is.
“While demand is rising, we are seeing a drop in global production,” said Phil Flynn, an analyst at the Chicago-based Price Futures Group and one of the most vocal proponents of long oil positions, in a daily note on Friday.
“U.S. production is at risk as the number of (rig) rigs has been falling in recent weeks,” Flynn said. He cites growing demand for oil in China, which is driving up shipping costs, US crude oil exports hit a 2.5-year high and a three-month high in Saudi oil shipments in January.
“The recent drop in prices does not instill confidence that you need to invest a lot of money to increase production right now,” Flynn laments.
What is happening now is a crisis of confidence in the financial system, which, although not universally recognized, is as important as supply and demand.
For those who care, I did a deep dive into this over the weekend, but here’s a shortened version for you, otherwise:
The global oil trade may be worth around $200 billion at current prices, but not a single barrel of crude oil can move without financing or liquidity provided by banks. Banks are market makers for all commodities, not just oil, as they bring together buyers and sellers who have different needs, risks, time horizons and incentives.
The consequences of a weakening role of banks in commodities could be far-reaching and negative. The construction of new wind farms and natural gas power plants may be curtailed due to the inability of developers to hedge their price risks. Independent oil and gas producers and dealers will have limited ability to hedge investment and inventory price risks. Airlines highly sensitive to jet fuel prices could be at risk.
Oil refineries could be closed, pushing up gasoline prices. In general, competition in energy markets will decrease and smaller players will be at a disadvantage. Higher volatility will reduce domestic investment, leading to increased dependence on foreign energy sources. And consumers – and the US economy – will suffer from higher and more uncertain prices.
If the banks were left out of the commodity markets, it is completely unclear who could replace them and to what extent. Some markets would be more opaque, less transparent to entities based outside of the United States. Others may be major competitors to small and medium-sized banked companies. All of them will be much less regulated than banks, which are among the most heavily regulated entities in the United States.
That’s it – the critical role of liquidity and pricing played by banks, and why the crisis of confidence in this sector is now striking at the very heart of the oil trade. Without banks, the oil market – or, for that matter, any commodity market – might simply not exist in the current structure on which we have been accustomed to depend for decades.
Gold: Market Calculations and Activity
Gold hit an 11-month high, breaking out of the grip of the $1,900 average price and heading towards the bulls’ long-term bull target of $2,000 as Friday’s U.S. banking crisis forced more investors to seek safe havens.
“The return of bank anxiety is driving the price of gold soaring,” said Ed Moya, an analyst at online trading platform OANDA. “Many gold investors are looking at short-term macro risks and it seems like a wide range of expectations should be mostly positive for bullion.”
On Friday, the New York Comex saw its last trade for $1,993.70. The official session ended at $1973.50 per ounce, up $50.50 or 2.6%. The session high was the last trade at $1993.70. April gold was up $106.30, or 5.7%, by the end of the week, according to official estimates.
Some traders followed futures more closely than futures and closed at $1989.34, up $69.79 or 3.6% on the day. The session high for bullion was $1,989.39, also an 11-month high. Over the week, spot gold is up a whopping $122.34, or 6.6%.
Gold prices have plummeted since the U.S. banking crisis erupted a week ago, when the Federal Deposit Insurance Corporation took over two medium-sized lenders, Silicon Valley Bank and Signature Bank, as depositors pulled billions of dollars from them over concerns about their ability to pay. Silicon Valley has filed for bankruptcy protection in the last 24 hours. A third bank, First Republic (NYSE:), is also in trouble, despite receiving a $30 billion cash injection from a consortium of banks.
Elsewhere, the banking crisis has spread to Europe and Credit Suisse (NYSE:), one of the preeminent names in the global investment banking business, has had to turn to the Swiss central bank for help.
The constant increase in interest rates by the Fed also raised fears that the US economy could fall into a deep recession.
Whichever path the central bank chooses now could be a boon for gold, said Ed Moya, an analyst at online trading platform OANDA.
“If the Fed does away with rate hikes, that should be bullish for gold as it puts a short-term limit on the dollar,” Moya said. “If inflation turns out to be tighter and the Fed has to resume tightening, it will deal a severe blow to the economy and trigger a lot of safe haven flows for gold.”
Moya said gold could hover around $1,950 ahead of Wednesday’s rate decision, adding that Wall Street might then have a better idea of how bad a US recession could be. “Sanctuary flows into gold should be stable as the economy enters a recession,” he added.
Gold: Price Prediction
As the 4-hour spot gold relative strength index hits an overbought condition at 82, SKCharting’s Dixit said some pullback to the $1965-$1955 support corridor is highly likely.
“This is likely to happen before we start pushing further towards $1998, a conservative initial target that is the door to the larger $2068-$2073 target,” Dixit said.
If momentum weakens below $1965-1955, gold is likely to see a further correction towards the main $1932-1928 support zones, Dixit added.
“Overall, the broader outlook favors a retest of the all-time high of $2,073, or at least $2,068,” he said.
“We will see either a strong correction from $2068 to $2073 or a new high if gold gains enough momentum above $2073.”
Natural Gas: Market Calculations and Activity
On Friday, the New York Mercantile Exchange’s Henry Hub closed a final trade at $2,350 per mm Btu, or one million British thermal units. The official session ended at $2.338, down 17.6 cents or 7%.
The mostly warm winter of 2022/23 has resulted in much lower than normal heating demand in the United States, leaving more gas in storage than originally thought.
In response to warming weather and weak storage demand, gas prices fell from a 14-year high of $10 per MMBtu in August to $7 in December and traded mostly at an average of $2 last month.
as of March 10 was 1.972 trillion cubic feet, or trillion cubic feet, up 36% from last year’s level of 1.451 trillion cubic meters. , reported.
This balance came after another unimpressive weekly drawdown of just 58 billion cubic feet, or billion cubic feet, due to storage compared to forecasts for a 62 billion cubic foot deficit and the previous week’s drop of 84 billion cubic feet.
Analysts doubt that weekly gas withdrawals will have a noticeable impact on storage facilities and push prices higher in the near future.
“Since there are about 3 weeks left until the selection season, and the current reserves are 1.97 trillion cubic meters. feet, the remaining withdrawals will have to average about 60 billion cubic meters.
Weather forecasts for Friday morning predicted heavy snowfall in parts of the central plains and the upper Midwest of the United States, Gelber said, adding that the winter storm was likely to last into Friday and Saturday but was not expected to cause disruption to natural resources. gas.
“Currently, it appears that it may be difficult for the market to bring capacity down to 1.8 tcm. feet, even in cold conditions,” Gelber said in a note.
Natural gas price forecast
Despite the signs of a recovery that tried to appear as gas surged from $1.97 to $3.02, SKCharting’s Dixit said the bulls in the market were far from putting an end to the bears.
“At this point, either the gas will drop some more to retest $2.15, such as making a swing low to $1.96 to start a technical bounce, or risk a correction deepening to $1.76 and $1.50,” – he said. “That’s my thesis before there are any signs of the bearish trend exhausting.”
On the positive side, if gas returns to $3.04, the first upside challenge will be $3.30 and $3.75, Dixit added.
Disclaimer: Barani Krishnan has no positions in the commodities and securities he writes about.
