By Barani Krishnan
Investing.com – It was a big week in the oil sector, with oil reaching $ 65 a barrel and $ 75, before falling dramatically from six-month highs. Donald Trump was the reason for the rise and fall, proving yet again his ability to surprise the market with the unexpected.
The US president also tested the intelligence of energy operators, feeding them with one of the most ridiculous tales of oil and getting at least a few to buy the story. Trump opened the week announcing that he was ending all sanctions waivers for Iranian oil importers. That was the surprise. Then came the ridiculous part. He said on Friday that he had "called" OPEC to lower domestic gasoline prices, which rose 27 percent year on year.
It's not clear how many traders really believed in Trump and how many just needed an excuse to pull off a seven-week rally. US pump prices are determined by both fuel demand, inventories and refining margins, as well as crude oil supplied by OPEC and local drillers. Anyway, Trump's story took the oil rally to an abrupt halt, giving the bulls an unexpected 4% loss on the day and a 2% retreat a week.
For the record, the OPEC secretary general, Mohammed Barkindo, later denied having spoken to the president.
In addition, the weekly reading of US oil rigs, released on Friday, showed a surprising drop of 20 probes that took the count down to a 13-month low. In any case, it was a testament to Trump's inability to persuade even national punchers to unite production to offset OPEC's huge production cuts this year.
And the market may not have fully agreed to the seriousness of a contamination issue in Russian oil, which has already closed 1.5 million barrels a day in refinery delivery across Europe.
Even so, Friday's liquidation was a sign that the upward momentum of oil could falter at any moment, even with the (limited) restriction of Iranian oil now (we explain the reason below), separate US sanctions against Venezuela and a civil war in Libya. A negative for the price of oil has been rising
And for those who still believe in Goldman Sachs forecasts – though the Wall Street bank is more wrong than right today in commodities – Brent prices have already surpassed this quarter by $ 75. That means the 40% which oil bulls are sitting for this year may have peaked for the time being, and there are other types of commodities that could offer a better alpha.
may be one of those areas, with the Fed hoping to follow its dovish roadmap at next week's monthly policy meeting of the US central bank. Those long on the yellow metal are looking to recapture the price of $ 1,300, despite being hit for most of last week by a strong dollar. For insects, Friday's rebound promises it came after a vigorous quarterly reading of US GDP, which should have triggered a Wall Street rally.
To reiterate, it was a great week for oil, with Trump Cabinet increasing the effort to push Iranian oil exports to zero and the Rouhani administration on its knees. Neither would happen, analysts say, pointing to Beijing's plans to continue buying Tehran's oil, and Iran's proven legacy of being immune to the dictates of several US presidents.
For many analysts, it is still unimaginable that Trump, which needs low oil prices, seeks a virtual ban on Iran's supply amid continued tightening in global production by a very determined Saudi Arabia and continued disruptions in Venezuela and Libya. A year ago, the president seemed well-placed to accommodate some of the "bad guys" the Rouhani regime was capable of, with mid-term US elections being only a few months away. But with the next presidential election not until November 2020, and with a cheery Saudi Arabia twisting aside with the prospect of its arch-rival being stifled from the market, accusing Iran of definite punishment seemed right in Trump's eyes.
In addition to Trump's disputable "appeal" to OPEC, the week became more interesting with the Saudi Energy Minister's reminder to the president that the US should not rely on the Kingdom to raise production immediately to compensate Iranian barrels lost. Khalid al-Falih maintained that it would provide Saudi oil customers as much as needed. But none of this would be done preemptively on the notion that the market was low on oil because it simply was not, he added. It was wise for Arabia to speak for "show us the money and we will show you the oil." With about $ 65 for the WTI and $ 75 for the Brent, Falih can afford the production. And to some extent he was right about the market being adequately supplied with Orbital Insight, a Californian company that uses satellite trackers, reporting that global oil inventories rose more than 140 million barrels a year.
The other dark horse for production is the organic chloride contamination that apparently comes from the Russian Druzhba (Friendship) pipeline, which halted delivery of about 1.5 million barrels a day to European refineries. The Druzhba network is one of the largest in the world and provides refining plants in Germany, France and Italy, connecting smaller refineries throughout southeastern Europe. Seeking Alpha energy writer Douglas Adams notes that cleaning can take weeks, even months, considering the thousands of miles of pipelines that could possibly be involved.
In the energy corporate world, Occidental's (NYSE 🙂 offer by Anadarko at $ 76 per share gave rise to rival Chevron (NYSE 🙂 $ 65 bid. Oxy's offer consisted of half in cash and stock, while Chevron's was mostly stock. And that earlier offer was worth even less, about $ 62 a share, with the decline in Chevron shares in the last two weeks.
In November, a huge 92-billion-cubic-foot production last week and near three-year low prices raised questions about whether fuel was cheap enough for US companies to use coal.
Energy front calendar
Tuesday, April 30
weekly report on oil inventories.
Wednesday, May 1
The weekly report on oil stocks.
Thursday, May 2
EIA Weekly Natural Gas Report
Friday, May 3
weekly probe count.
Review of Precious Metals
After striding relentlessly in China and global economic concerns, gold began last week on the US-Iran oil dispute, which has brought some old-fashioned geopolitical tensions back to the gold bars.
From there, it was an uneven track for the yellow metal, with the dollar climbing one after another in US resilient data.
But the dollar rush also came to an end by the end of the week after a strong first-quarter US general growth report was overshadowed by low inflation data.
The core consumer price index, the Federal Reserve's preferred inflation index, rose just 1.3 percent from 1.8 percent in the previous quarter, CNBC said.
According to a Reuters poll, major central banks are tightening policy as global growth prospects have softened in developed and emerging economies with little prospect of rising inflation.
The weak global outlook may leave the Fed again in its monthly statement on the monetary policy meeting on Wednesday, providing a boost to gold even as relatively strong US data should be beneficial to the dollar.
While gold fell more than 4 percent from a February peak, gold recovery from last week's four-month low showed a neutral image in technical charts, Reuters technical analyst Wang Tao said.
Goldman Sachs said gold purchases from the central bank are also strong, another factor that could sustain a return to levels of $ 1,300.
Calendar of precious metals ahead
Monday, April 29
Expectations of consumer inflation in the EU
US Main Price Index (March)
Personal expenses in the US (March)
Tuesday, April 30
China Manufacturing & Non-manufacturing PMIs (April)
Primary GDP of the euro area (Q1)
GDP of Canada (Q1)
Chicago PMI (April)
CB Consumer Confidence (April)
Sales of outstanding homes (March)
Wednesday, May 1
UK Industrial PMI (April)
ADP non-agricultural payroll (April)
ISM Manufacturing (April)
Decision and declaration of the Federal Reserve rate
Thursday, May 2
China Caixin PMI Manufacturing (April)
UK Construction PMI (April)
Bank of England rate decision
Initial jobless claims
Factory Orders (March)
Friday, May 3
UK PMI Services (April)
Instantaneous euro area CPI estimate (April)
US non-farm payroll (April)
Non-industrial PMI ISM (April)