Commodities Week Ahead: OPEC Oil Report Could Prompt More Cuts; Gold To Swing
Investing.com | May 13, 2019 08:32
The Organization of the Petroleum Exporting Countries (OPEC) is expected to make a strong case to continue with production cuts in its monthly report due on Tuesday as dominant member Saudi Arabia shows it isn’t in any mood to give up the high prices it has worked hard to acquire since the winter.
The International Energy Agency (IEA) might also buttress OPEC’s argument by projecting weaker demand for oil in its own monthly report due on Wednesday. A softer crude demand outlook versus relatively high global stockpiles will validate the Saudi quest not to raise production.
Crude prices rose cautiously in Monday’s Asian trade as the market tried to price in last week’s shock move by U.S. President Donald Trump to add import tariffs on Chinese goods.
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Oil prices have retreated from their 2019 highs due to conflicting supply-demand signals. But the rally underpinned by Saudi production cuts hasn’t lost much of its momentum. Despite a third straight loss last week, U.S. West Texas Intermediate crude remains up 36% year-to-date. U.K. Brent, the global benchmark for oil, fell for a second week in a row last week, and still trades 32% higher on the year.
h3 Tariffs On China Counteracting Oil Rally/h3U.S. sanctions on Iranian and Venezuelan oil have created artificially low supplies that, along with the OPEC cuts, have helped the cartel sustain and grow the oil rally. But Washington’s unexpected tariff hike on Beijing is counteracting that now, with many worried that China’s already troubled economy could suffer more as consequence.
Anemic U.S. growth could also stall if American companies in China that manufacture for the U.S. market find Trump’s new 25% tariff versus the previous 10% prohibitive. If the world’s top two economies began a serious decline, that could hardly be good for oil.
Thus OPEC, or more importantly, the Saudis, aren’t taking any chances. They are keeping up maximum pressure on production by landing fewer barrels to the market whenever possible.
h3 OPEC Report To Lay Down Saudi Case For More Cuts/h3While Wednesday’s monthly report by OPEC could acknowledge lower production by the group due to outages in Iran, Venezuela and Libya, it is also expected to forecast less demand for its oil and expectations for higher non-OPEC supply.
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These will validate the Saudi argument that there should be deeper cuts, or at least no hike in production, when OPEC and its allies, led by Russia, meet on June 25 in Vienna to debate their next course of action.
Ahead of the OPEC report, Orbital Insight, a Californian company that tracks global oil inventories by using satellite readings of storage tank rooftops, said on Thursday that OPEC oil stockpiles had fallen by 10 million barrels per day for the month ending May 6. Saudi Arabia saw the sharpest drop of 3.9 million, followed by Iran at 3.7 million and Libya at 730,000.
h3 IEA, EIA Reports Make It Data-Heavy Week For Oil/h3The IEA is also expected to have a bearish world view on oil consumption, given the developments on China. While that might weigh on crude prices right after the agency’s monthly report is released on Wednesday, Saudi jawboning on production cuts is expected to bring the market back higher.
Wednesday will also see the release of the U.S. government’s weekly numbers on stockpiles and output of crude and other petroleum products. After five weeks of crude builds totaling nearly 30 million barrels, the Energy Information Administration (EIA) last week cited the first sharp decline of nearly 4 million barrels. If that trend reverses again, it will bolster the Saudi case that more market tightening is needed.
h3 Gold Remains In Uncertain Land/h3Meanwhile, gold’s outlook remains a lot less certain than oil’s despite last week’s spurt higher on the protracted U.S.-China trade war.
Both spot gold, which reflects trades in bullion, and U.S. gold futures were down in Monday’s Asian trading, after appearing to make a renewed run toward the key bullish mark of $1,300 an ounce last week.
While the yellow metal could certainly benefit if the U.S.-China trade angst leads to a further battering in equities, its mixed technicals and fundamentals mean that its reach as a safe-haven will be limited.
Philip Streible, senior strategist for metals for RJO Futures in Chicago, said gold has run into stiff technical resistance, trapped between the 100-day moving average high of $1,300 and the 200-day moving average low of $1,267.
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