© Reuters
By Barani Krishnan
Investment.com – Oil price movements are as exciting as those on the Ukrainian front this week. Given that Vladimir Putin has turned global energy prices into a referendum on his war, it is perhaps not surprising. However, it was. After all, after nearly seven months of conducting the invasion of Ukraine, the fortunes of both the oil speculators and the Russian President’s “special military operation” do not look special.
Crude oil prices stabilized at slightly higher levels on Friday. But on a weekly basis, they fell for a third straight week, with US West Texas Intermediate crude prices once again ending below the key $90 per barrel mark, while global benchmark Brent struggled in the to win back the $100 berth it lost on Aug. 31.
What is more interesting is what is happening with the Russian President and his once tight grip on energy prices.
At one time, just a hint from Putin about a squeeze on Russia’s energy exports could straighten oil traders and send crude prices soaring.
Lately, however, some of Putin’s rhetoric seems to have lost its impact on the energy crowd. These include his threat to completely shut down all oil and gas flowing out of his country unless the G-7 stops the so-called “price caps” on Russian oil and the EU lifts. lift sanctions built around the Nord Stream 2 pipeline.
Let’s make one thing clear: the energy market as a whole is still very scarce in terms of supply. A major disruption is all it takes for the price to rise again.
Still, oil prices haven’t really risen too much from the seven-month lows they fell nearly two weeks ago. And it’s because of the overtime that the Federal Reserve has done to banish traders’ worries about inflation and interest rates. The oil bears have also received help from a repressive-friendly China, it seems that Covid has been trapped in time in Marty McFly’s fictional McLaren, as the rest of the world has gone through the Great Depression. translated for more than a year.
Of course, gas prices in Europe are still sky-high. And US gas prices are looking to hit new 14-year highs every day out of sympathy for what’s going on across the Atlantic. This comes despite a very well informed gas market constituency patiently telling anyone interested to listen that US LNG production is capped at 13 billion cubic feet. every day, and there’s nothing more we can do to raise that level immediately – even if Europe goes to hell in a casket this winter, that, incidentally, is what Putin wants (that it comes there in a frozen coffin).
Either way, much of the lofty forecasts for both crude oil and gas prices for the fourth quarter of this year and the first quarter of 2023 are based on forecasts that the coming winter will be brutal. No one knows for sure how that will turn out. If the opposite turns out to be true, I can only imagine how much money it would cost in the long run to listen to the great advice of Jeff Currie at Goldman Sachs.
But back to Putin. More interesting than the moves in oil was Friday’s public dressing by the Russian leader from one of his biggest allies – Indian Prime Minister Narendra Modi. And, unfortunately for Putin, that comes after Russian forces lost significant and embarrassing territory in Ukraine over the past week.
Crude oil prices closed sharply lower from their highs on Friday – WTI ended up just one cent – on news that Iraq’s Basra oil storage had resumed pumping after a brief interruption because of the spill. oil. The resurgence after the Fed’s third consecutive bumper rate hike this week also contributed to Friday’s early rally in crude. A jump to 736 is another negative.
However, while these events dominated the oil headlines on Friday, discreetly weighing on the market, the image of a Putin is slightly diminished by key ally Modi. , after the Indian prime minister refused to share Russia’s passion for the war in Ukraine.
“I know that this day is not the age of war and I have talked to you on the phone about this,” the Indian leader told Putin as they chatted on the sidelines of the summit. the summit of the Shanghai Cooperation Organization that the Russian President tried. to use as an introduction to his alliances with China and India.
How Modi and Chinese leader Xi Jinping react to Putin and the war in Ukraine has important implications for crude oil prices, especially from the point of view of the Russian oil price cap that the Group of Seven wants to impose. from December to limit what Moscow can gain from its energy exports to fund the war against Ukraine.
For the record, India rejects a G7 oil price cap, saying that energy security needs – and economics – will guide their refiners’ crude purchases. But in response was India’s tacit admission that the lower the price of Russian crude oil, the greater the demand from Indian refineries. And that basically underscores the purpose of the oil price cap, which is to reduce Russia’s revenue from oil. Crude oil-importing nations, led by China and the United States, could also see prices fall for a barrel in the futures market as discounted Russian oil enters the real market, putting pressure on crude oil prices. competitive barrels from Saudi Arabia and other manufacturers. Of course, Russia could export more barrels at reduced prices to make up for lost revenue, but that’s not what Putin and Saudi Arabia want.
China’s Xi also refrained from embracing Putin excessively this week over the war in Ukraine. That forced the Russian leader to publicly acknowledge “the balanced position of our Chinese friends regarding the Ukraine crisis.”
In a further concession, Putin on Friday said Russia would maintain its energy commitments if the West lifted restrictions on Russia’s Nord Stream 2 gas pipeline running through the bloc. Just a few weeks ago, Putin virtually kept the oil and gas export ransom in Russia’s dealings with the West.
“It’s a fact: Putin’s scary talk about energy is getting less and less scary,” said John Kilduff, partner at New York energy hedge fund Again Capital. “And key allies of Russia, India and China, have shown this week that they are more like weather buddies than someone who will stand by Putin in the storm.”
Oil: Market Activity and Settlement
The New York-based exchange made the last trade of $85.40 a barrel after closing the official session just a cent higher at $85.11.
For the week, the US crude benchmark fell nearly 2%, adding to a loss of nearly 7% in the previous two weeks.
The London exchange last traded at $91.57, after closing the official session up 51 cents, or 0.6%, at $91.35 a barrel.
For the week, the global benchmark for oil fell 1.6%, adding to a decline of nearly 9% from the previous two weeks.
Oil: Price outlook
It’s technically stuck between a rock and a hard place, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
Dixit said: “The price action setup is absolutely weak. “As long as WTI sustains below $88.50, the bears will continue to push towards $82.50 and $81.20. If this zone fails to support, look for the 78.6% Fibonacci level of $77. “
He noted that over the past two weeks, the US crude oil benchmark has failed to break above $88.43 consistently (61.8% Fibonacci retracement of $62.43 – $130.50). despite checking $90.37 and $90.17.
“Last week’s drop to $81.20 caused some rebound as the price approached the monthly average Bollinger Band at $82.47, however, a lack of buyer confidence drove the price down. down,” Dixit said in his analysis. “The weekly stochastic indexes at 9/8 continue to crawl below the 20 mark for the 7th straight week, while the weekly RSI weakens in the oversold zones.”
On the downside, a sustained break above $88.50 could resume the recovery towards the 50-Week Exponential Average of $92.08 and challenge the $96.50 level (Fifibon 50 level). %) and $97.10, representing the 200-day Simple Moving Average.
Gold: Market Activity and Settlement
It’s amazing how 24 hours can do gold in the week just ended, compared to what 24 months ago did.
On Thursday, when both the forex and bond markets were not enough to move the needle for gold prices, the bears found it appropriate to push the yellow metal to the mid-$1,600 lows seen ahead of the crash. the 2020 pandemic rally, eventually leading to an all-time high above $2,100 for bullion.
In an ideal world, market moves are in perfect sync with news, data, and other valuation matrices of an asset. Of course, in the real world, there are more chances for things to get too bright or murky.
Thursday’s gold sell-off went beyond the doldrums. As a wave of risk-on sentiment builds on commodities, yellow metal lovers seem to have become its biggest victim. One by one, stop loss orders for gold were issued like nine points, as the market balked at the baseless panic.
For what it’s worth, the benchmark New York Comex gold futures contract, last traded at $1,684.50 after closing the session officially up $6.20, or zero. .4%, at $1,683.50. For the week, it was down 2.6% in the 4th week in the red.
Copper, which is watched more closely by some traders than futures, settled $10.90, or 0.7%, at $1,675.42. For the week, spot gold lost 2.4%, also down for the fourth week of the year.
And with 72 hours to go before the Fed, there is still room for things to get a little more uncomfortable for the gold bulls before they get better.
Gold: Price Outlook
SKCharting’s Dixit said gold’s drop below $1,681 over the past week has shaken the confidence of the bulls as the drop corresponds to the 38.2% Fibonacci retracement level of the rally. long-term for bullion from $1,046 to $2,073.
“With this extraordinary drop pushing the metal below the 200-Week Simple Moving Average of $1,676 and the 50-Month Exponential Moving Average of $1,670, there is a growing possibility for gold to fall further. further down to the next lower level. We are talking a 50% Fibonacci level of $1560 against the pace of Fed rate hikes which could add to the strength of the Dollar Index and ”.
However, in an “old school” way, gold is also likely to bounce back towards the broken support zone of $1,700-$1,710 before continuing to decline towards the $1,560 level.
“In short, the metal has been extremely undervalued over the past six months as it has accumulated a massive $420 loss,” noted Dixit.
Although the weekly and monthly stochastics of September 14 and November 5 have reached oversold territories, the daily stochastics have created a positive overlap.
“For the next week, recovery targets of $1,695 and $1,705 can be set initially.
Buyers can step in around $1,670-$1,665. The Fed’s 75 bps increase isn’t just getting into the cake; it has been digested. If it’s 100 bps for whatever reason, gold will melt faster than ice below 100 Fahrenheit. We can hit $1,618 in a flash.”
Disclaimer: Barani Krishnan does not hold positions in the commodities and securities that he writes about.
