Brent Crude lost about 0.62% to trade at $42.94 a barrel, at 6.05 am Nigerian time.
Crude oil prices dropped on Monday morning at London’s trading session, as oil traders placed their focus on an OPEC technical meeting scheduled to hold on Wednesday. The meeting is expected to recommend an easing in the curb on oil production that has helped rally crude oil prices in recent months.
Brent Crude lost about 0.62% to trade at $42.94 a barrel, at 6.05 am Nigerian time, also the American benchmark for crude, WTI, lost about 0.72% to trade at $40.26.
Crude oil prices remained relatively unchanged in the previous week as the resurgence of COVID-19 caseloads soared in the world’s largest oil-consuming economy, and the plan to impose travel restrictions in some global economies. These factors could most likely trigger a decline in the demand for oil.
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沈师娘Quick Fact:沈师娘 Brent crude is the leading global benchmark for Atlantic basin crude oil. The international benchmark is used to set the price of about two-thirds of the world’s traded crude oil including Nigeria’s crude.
The importance of crude can’t be ignored; it is used mainly in fueling aircraft, vehicles, and trucks that facilitate economic lifestyles and activities in the modern world. Derivatives from refined crude are used in the production of polymers, as well as the production of waxes, tars asphalts, and lubricants.
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Stephen Innes, Chief Global Market Strategist at AxiCorp in a note to Nairametrics explained the macros, which oil traders are presently monitoring. He said:
“The recent surge in coronavirus infection numbers in the US and elsewhere have brought demand risk back into focus.
“The planned easing of OPEC+ production cuts next month after a one-month extension of the initial phase of the production cut plan and a potential rebound in US production could add pressure on the supply side of the equation.
“And factor in Libya lifting the force majeure, it adds another unwanted level of supply-side uncertainty at an extremely critical point in the oil price recovery phase.
沈师娘READ ALSO: Global oil prices drop after reports of unexpected inventory build沈师娘
“While the evidence suggests we are past the trough for oil and that supply and demand are rebalancing, near-term headwinds remain as the short-term fundamentals are about as muddy as possible.”
However, crude oil prices rallied more than 2% on Friday after an upward forecast by the IEA in its 2020 oil demand by 400,000 barrels per day.
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For the week to week though, Gold futures were up 0.7% while spot gold gained 0.5%.
Gold futures prices closed the week on a cumulatively bullish note amid prevailing macros, though it was unable to show clear direction to gold traders.
U.S. gold for December delivery closed at $1947.9 per ounce, losing up to 0.8% at its last trading session. It had however gained over $27 in three previous sessions. Notwithstanding that, the precious metal remains far below its record highs of nearly $2,090 hit on Aug 7.
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Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, spoke on the precious metal, with vital insight on the macros prevailing. He said:
“Gold seems to have set a bottom and is still trading with a high correlation to US equities.
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“I expect interest and volatility to fade a bit, as there has been a fair amount of hyperactivity in the past month. I still think we test $1910 next week as the markets get spooked by positive vaccine news and a not-so-dovish September FOMC.
Flow-wise, there is extraordinarily little buying interest from real money accounts and some tentative selling from fast money.”
沈师娘Quick fact沈师娘: Gold is mainly used for making jewelry, physical coins, and in recent times, for industrial purposes. Humans are emotionally and physically drawn to gold. It provides a significant store of value. Global Investors buy gold to hedge against inflation.
Both oil benchmarks dropped below the $40.
Crude oil prices continued to decline at Asia’s trading session on Friday. The surprising surge in U.S. crude oil stockpiles, and sluggish demand in gasoline, enabled oil traders to retreat from making bullish bets.
At the time of this report, Brent oil futures dropped 0.35% to trade at $39.9 and WTI futures were down 0.05% to trade at $37.28. Both oil benchmarks dropped below the $40 benchmark.
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The U.S. Energy Information Administration (EIA), yesterday, reported a 2.032 million-barrel build in crude inventories for the week ended September 4, against expectations of a 1.335 million-barrel draw. EIA’s figures follow the American Petroleum Institute’s (API) report earlier in the week of a 2.970 million-barrel build.
Stephen Innes, Chief Global Market Strategist, AxiCorp, in a note to Nairametrics, spoke about the bearish trend presently prevailing itself at the oil futures market. He said:
“Oil is in track for the ugliest and biggest two-week drop since April as US inventories rise bearish to consensus at the horrible time as mid- September heralds the end of the US peak driving season,”
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“All the while, refinery runs are hampered by weak margins and lingering hurricane impacts,”
“Still, positive for the view is gasoline warehouses are getting taken down, but this doesn’t lessen the forward-looking concerns that demand could deteriorate into the slower driving winter month, which this year is getting compounded by virus fears as the northern hemisphere moves indoors where the virus could spread quickly.”
Nairametrics views the price correction in crude oil as overdue, given a slowing demand recovery, and rising supply in the near-term.
Despite renewed optimism, several factors tend to continue pushing oil prices downwards.
The past three weeks have been very volatile for oil with WTI trading at around $37 on Thursday. Just when it appeared the oil bulls were taking prices to pre-pandemic levels; the Bears showed their teeth by taking the markets on a downward spiral.
We can look at what has really made the markets move in the past fortnight and what the fate of the oil markets are in the short-term.
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沈师娘Strong dollar and gasoline demand 沈师娘
Oil prices settled lower last week, pressured by a stronger U.S. Dollar, which dampened demand for the dollar-denominated commodity. The strength of the dollar would come as a surprise as markets predicted the bearish pattern of the dollar. Still, in line with the inverse relationship, Dollar got stronger and oil crumbled. In addition to the fall of oil prices last week, it was also observed that there was weak demand for gasoline in the short term. There were also expectations that refinery demand for crude will weaken in the fall.
A report from the U.S. government showed shrinking domestic crude and gasoline inventories. It is expected that many refineries will soon stop operations to conduct usual maintenance. The double whammy of maintenance of refineries and downturn in summertime fuel consumption gave oil a bearish outlook. Until schools and offices open, we are faced with a possibility of low demand and this weighed on oil prices.
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The refined products market has remained weak, and this is no surprise given the impact on fuel consumption on the demand side. Very few Asian refiners are buying oil as they still have loads of oil bought when prices were low.
There were murmurings from state media that Iraq was seeking exemption from cuts and this weighed down on oil prices. Although Iraq’s oil ministry denied the reports in state media that the country was considering an exemption from its production quotas and obligations, the rumor portrayed cracks in the wall of the OPEC accord. Notably, there have been compliance issues with Iraq and Nigeria, and any sort of uncertainty influences prices downwards.
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沈师娘Saudi OSP cuts.沈师娘
Saudi Aramco devalued its October official selling prices for crude supplies to Asia and the US, as the company forecasted slow demand of oil from these areas. The pandemic is still a major bear card in this market and until there is an equitable distribution of vaccines, it would still be a factor to consider before placing oil positions.
沈师娘The calm before the storm沈师娘
Two weeks ago, the Gulf of Mexico, which appears to be one of the largest production areas of US Oil, was taken aback by magnanimous hurricane levels. Hurricane Laura approaches the Texas-Louisiana coast and many energy participants wondered how it will impact the energy sector as the areas affected is mostly important oil and petroleum area in America. There was a disruption in the Oil Production as around 1.6 million barrels per day of offshore crude oil production were stopped as production members in the Gulf of Mexico had fled the areas. That amounted to over 80% of U.S. offshore crude oil production in the Gulf of Mexico. This affected inventories and sent prices up as supply was taken off the market.
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Another situation that gave Bulls momentum was the decline of the dollar during that same period. It is evident there is an inverse relationship between the US dollar strength and oil prices. Dollar faced a bashing against other currencies as the U.S. economy proposed to keep the dollar lower. This gave a lift to crude oil prices.
Vandana Hari, founder of Vanda Insights said “as far as fundamentals are concerned, there is really not much to move oil around either way, which is why we have seen it pretty range-bound but within that, continuing to grind higher because of a weaker dollar.”
沈师娘Goldman Sachs outlook沈师娘
In a statement released from Goldman Sachs, the investment bank said, “Key to the resilience of spot prices, despite stalling inventory draws this summer, has been the steady rally in long-dated prices,”
The statement was so bullish to the markets, it was recommended as an effective portfolio hedge against uncertainty in other sectors. Analysts saw this as a positive sign, and this sustained the bullish outlook on prices.
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