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Weekly review and outlook: energy and precious metals

Investing.com - This isn’t how the Saudis imagined it would be. There’s also no certainty after this that it’ll play out the way they want it to be.

We’re talking, of course, about the so-called demand for oil and how it's weighing on crude prices, which reached July lows of beneath $75 a barrel in the just-ended week. 

While the Saudi-Russia led oil producing alliance OPEC+ has a meeting on Nov. 26 that could again introduce a tighter supply mentality in the market, the group’s exports for now are rising. Latest OPEC+ data shows an expected seasonal rise of 180,000 barrels led by Iraq and Iran.

In the meanwhile, buying of oil for speculative purposes had plunged. 

“The petroleum buyers are gone, unless you are talking oil call options, as supply and demand take a back seat to rising macroeconomic fears,” Phil Flynn, energy analyst at Chicago’s Price Futures Group, wrote as crude futures finished with a third straight week of losses after a four-month low earlier in the week. “Maybe the buyers of oil have been taken away from the mother ship or maybe they have just ridden off into the sunset, but the reality is we are seeing a short oil position of epic proportions as the market seems to remove the risk of ever rising again.”

To hear one of the market’s loudest oil bulls admit that people have been fleeing the long crude game like rats abandoning a sinking ship should be a wake-up call to those who kept drumming for a return to $100 pricing in recent weeks.

“Underneath it all, the crash in the price of oil is either a very ominous sign for the state of the global economy or a sign that it is being driven by fear and not on supply and demand fundamentals,” said Flynn. “The oil market swing in mood has gone from pricing in the biggest threat to global oil supply since the Arab oil embargo 50 years ago to almost a record short position in the history of the oil futures markets.”

And with a late-week rebound in Treasury yields, the Fed may also have to raise rates to get investors interested in US bonds — adding to market unease that the central bank’s near two-year-long monetary tightening wasn’t over.

Reinforcing that notion, San Francisco Fed President Mary Daly said she was not ready yet to call an end to rate hikes, echoing Fed Chair Jerome Powell's comments on Thursday.

US consumer sentiment also fell for a fourth straight month in November and households' expectations for inflation rose again.

Pierre Andurand, one of the most closely-followed hedge fund managers in oil, pointed out that the net long speculative positioning in oil - comprising crude products, options and delta futures - was fast approaching lows not seen since the data was introduced in 2011. 

The managed money category in the so-called Commitment of Traders Report showed that hedge funds sold about 400 barrels in the last 6 weeks alone. 

“There have been macroeconomic worries for a while now,” Andurand said. “However, demand growth has consistently been revised up during the year, and mobility data shows an acceleration in demand and demand growth. Some point to softness in the physical market.”

Weak Chinese economic data this week increased worries of faltering demand. Refiners in China, the largest buyer of crude from Saudi Arabia, the world's largest exporter, asked for less supply for December.

"Concerns about demand have replaced the fear of production outages related to the Middle East conflict," analysts at Commerzbank said.

Oil: Market Settlements and Activity 

New York-traded , or WTI, crude for delivery in December did a final trade of $77.35 on Friday after officially settling the session at $77.17, up $1.43, or 1.9%. 

For the week though, WTI was down 4.1%, after prior back-to-back weekly losses of 6% and 3%. That came after the US crude benchmark 11% tumble for October. 

London-traded crude for the most-active January contract did a final trade of $81.70 per barrel on Friday, after officially settling the session at $81.43, up $1.42, or 1.8% after Thursday’s 0.6% gain. For the week, Brent was down 3.8%, after back-to-back weekly losses of 6% and 2%. Prior to that, the global crude benchmark lost 11% in October.

Oil: WTI Technical Outlook

A WTI break below the 200-Day SMA, or Simple Moving Average, statically positioned at $78.10, is a significant drop that turns out to be a resistance for immediate recovery attempts that begin from the lows of $74.90, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“A rebound from the lows may face challenges at $78.60 and $79.90,” Dixit added.

Gold: Market Settlements and Activity 

Gold’s most-active contract on New York’s Comex, December, did a final trade at $1,942.70 per ounce on Friday, after officially settling the session at $1,937.70, down $32.10, or 1.6% on the day. The benchmark gold futures contract finished the week down $61.50, or 3.1% — versus the previous week’s near-flat finish.

The , more closely watched by some traders than futures, settled the session at $1,938.28, down $20.32, or 1.04% on the day. The spot price, which reflects real-time trades in bullion, finished the week down 2.8% — adding to the previous week’s drop of 0.7%. 

Gold: Spot Price Outlook 

Post-rejection from the $2,010 high has seen spot gold continuing to decline, extending the correctional wave that reached the 38.2% Fibonacci zone at $1,933 — which, in itself, came from the retracement of the $1,810-$2,010 bullish wave, said SKCharting’s Dixit.

“Next support for spot gold is seen aligned with the 100-Day SMA of $1,926.80,” said Dixit. “Immediate resistance shifts base at $1,963.”

Natural gas: Market Settlements and Activity 

’ most-active futures contract on the New York Mercantile Exchange’s Henry Hub, December, did a final trade at $3.017 on Friday, after officially settling the session at $3.033 per million metric British thermal units, down 0.3%.  The benchmark gas futures contract finished the week down almost 14% — versus the previous week’s 11% gain.

Natural gas: Technical Outlook

A correctional wave from $3.63 on December gas leans on an ascending channel support line of $2.98 and settles at the 50-day EMA, or Exponential Moving Average, of $3.03, said SKCharting’s Dixit. 

“Weakness below the zone will meet the next support at the 100-day SMA of $2.81,” Dixit added. “Any recovery will need to clear through $3.17 to reach $3.25 and $3.31.”

Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about.


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