Energy and Precious Metals – Weekly Review and Outlook

By Barani Krishnan

Investing.com — With the Federal Reserve’s July rate hike already academic and the United States already in recessionary territory, although technically the oil market is only worried about one other thing: what will do OPEC+ in the coming week.

Along with gold, the focus will be on the dollar and bond yields after the Personal Consumption Expenditure Index surged higher on Friday as the Fed’s favorite inflation gauge rose amid a fourth rate hike by the central bank this year.

OPEC+ – the alliance linking the Organization of the Petroleum Exporting Countries led by Saudi Arabia and 10 other oil producers led by Russia – meets on Wednesday to decide on September production quotas for the 23 countries in the group .

So far, Wire’s reports indicate that OPEC+ will likely leave production unchanged or increase it slightly for September.

When President Joe Biden departed Air Force One in mid-July for a meeting with Saudi Crown Prince Mohammed bin Salman, most media heralded the visit as one that would apparently be met with a goodwill gesture from oil. from the head state of OPEC, and then spawned the narrative of a failed mission when no such gesture came immediately.

Anyone who fully understands OPEC’s true intentions and how these translate into its production targets, as well as the time it takes to translate diplomatic efforts into action, would have had very different expectations of media spin. . This includes White House officials who have made it clear from the start that any production increases will be phased in over time.

Anyone familiar enough with OPEC+ will also know that while the Saudis hold the main levers of producing the alliance, the friendly relationship between the House of Saud and the Kremlin – especially between the Crown Prince and Vladimir Putin – should never be ignored.

The Russian president is determined not to let the United States gain any advantage from his country’s war against Ukraine. That includes the benefits extended by an oil-producing alliance with Moscow — especially when Western sanctions have already caused Russian crude prices to drop sharply, not to mention Biden’s efforts to subsequently cap the price of that oil.

As expected, less than a week after Biden’s visit, Putin called Crown Prince MbS – as the young monarch is known by his initials – to remind him of the importance of continued collaboration between the two nations in the spirit of OPEC+.

For further action, Russian Deputy Prime Minister Alexander Novak met with Saudi Energy Minister Prince Abdulaziz bin Salman on Friday after a statement from Moscow said: “Russia and Saudi Arabia remain firmly committed to the goals of the OPEC+ agreement to preserve market stability and balance supply and demand in world oil markets”.

But MbS is himself in a delicate situation. After punching and welcoming Biden, he opened up to at least unfreeze the cold war that had raged between him and the president who had sworn to make a pariah of his kingdom for the murder of the man. Saudi-born-US resident-turned-journalist Jamal Khashoggi, who the CIA says was killed on the orders of the crown prince. The Saudis, of course, deny this allegation.

MbS also wants more categorical US support for Riyadh in the conflict in Yemen. The crown prince and his UAE counterpart, Mohammed bin Zayed Al Nahyan, have been frustrated by Biden’s indifference to them previously, as well as the failure to address Gulf concerns over the UAE’s missile program. Iran and its regional proxies. All of that had seemed to change in a promising way with Biden’s visit.

Prior to Biden’s visit, OPEC+ had already increased production by 50% from June levels to nearly 650,000 barrels per day for July and August. If he maintains that for September, or increases it by 10,000 to 20,000 bpd, that would still be good from an alliance perspective and a win — albeit a measured one, for Biden. More importantly, OPEC+ is not expected to cut production at this point. And there is a danger of that happening if crude prices, which fell from $140 in March to below $100 last week, continue to fall.

As it stands, OPEC+ would have reversed all of its historic pandemic-era production cuts by next month. It is now at a crossroads where production is concerned.

Oil: Regulations and market activity

US crude benchmark West Texas Intermediate, or WTI, stabilized on Friday for the third time during the week, but still ended below the key $100 a barrel level and down for a second month. consecutive in July.

London-traded Brent, the global benchmark for oil, remained above the triple-digit price mark but posted losses in July.

WTI for September delivery made a final trade of $98.30 a barrel after settling Friday’s session up $2.20, or 2.3%, at $98.62.

For the week, September WTI was up 4.1%, after falling 13% in the previous three weeks.

WTI also posted a monthly loss of 7.2% in July, after falling 7.4% in June.

Brent for October delivery made a final trade of $104, having settled Friday’s session up $2.14, or 2.1%, at $103.97.

For the week, October Brent rose 5.7%, extending last week’s 2.7%. Prior to that, Brent had fallen a cumulative 17% over five weeks.

Brent crude for October delivery was down around 4.5% in July, after falling 5.7% in June.

Oil: WTI Price Outlook

WTI’s weekly pattern suggests further price recovery, at least from a technical perspective, said Sunil Kumar Dixit, chief technical strategist at skcharting.com.

“As long as prices hold above the 50-week exponential moving average of $93.08, momentum may continue to retest a weekly high of $101.87,” Dixit said. He attributed this to the 38.2% Fibonacci level retracement of the move from $62.45 to $130.50 and the extension to the weekly median Bollinger Band of $107.

But based on WTI’s low close for July, he said the monthly chart still indicated a bearish outlook, citing the stochastic reading of 53/65 which continued with a negative overlap.

“Weaknesses below the 50-week EMA of $93.08 would draw selling towards the low of $90.58,” he added.

Gold: Regulations and Market Activity

The benchmark August gold futures contract on New York Comex made a final trade of $1,764 on Friday after settling the session up $12.60, or 0.7%, at 1 $762.90. The session high was $1,765.85.

For the week, August gold was up 2.1%, its highest since a 4.2% gain in the week to Feb. 25.

Beyond the expiring August contract, Comex’s most active gold contract for December settled at $12.60 on the day at $1,781.80. Gold’s peak in December was $1784.60.

Gold could continue to rise to $1,800 if the dollar and bond yields pull back further from the Federal Reserve’s projections of lower rate hikes through the rest of the year, Ed Moya said. analyst of the online trading platform OANDA.

Gold’s rise came after the Commerce Department reported on Thursday that US gross domestic product grew negative 0.9% in the second quarter, following a 1.6% contraction in first-quarter GDP. . Consecutive negative quarters technically put the economy in recession.

But the personal consumption expenditure index – a gauge of inflation closely watched by the Federal Reserve – rose 6.8% on the year to June after being inactive for the previous two months, intensifying the central bank’s fight against price growth.

With the PCE rising in June, he signaled that inflation was relentless at four-decade highs and the Fed may not yet be done with the oversized rate hikes it has carried out this year. to fight against rising prices. The central bank has already raised rates four times this year since March, with the last two increases of 75 basis points being the highest of their kind in 28 years.

Gold: price outlook

Dixit from skcharting said the momentum helped gold overcome the $1,750 challenge and break through the “magic number” of $1,768 before giving it a second bullish weekly close, this time at $1,765. .

He said the weekly relative strength indicator turned bullish from 32 to 41 while the stochastic readings of 33/17 established a decisive rebound.

“The primary target is a 50-week EMA technical confluence zone of $1,830 and the 100-week simple moving average of $1,831,” he said.

Dixit said the daily chart for gold shows $1,735 to $1,725 ​​as a support zone. “The daily Stochastic now at 96/89 is rushing towards the overbought zone and is likely to cause a short-term correction at the $1,777-$1,785-$1,805 resistance cluster, which could lead to a price drop towards $1,735-$1,725.”

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

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