Commodities Week Ahead: Oil On Vaccine-Fueled Rally, Gold Seen Drifting
Oil looks set this week to cling to promises of faster-than-expected progress in coronavirus vaccines in an attempt to continue its three-week long rally.
Gold’s path may be less clear as Senate Republicans and the outgoing Trump administration continue playing the long game on any COVID-19 stimulus.
Crude prices neared 12-week highs in Asian trading Monday after the chief scientific adviser to Operation Warp Speed—the U.S. COVID-19 vaccine program—said Pfizer (NYSE:) and its German partner BioNTech (NASDAQ:) will likely be approved by the U.S. Food & Drug Administration to begin against the virus by Dec. 11.
Oil Clings To Vaccine Hopes
Stephen Innes, chief global markets strategist at Australian brokerage Axi, said in just a matter of weeks, vaccine makers have done for oil what had taken OPEC months to achieve:
“Positive sentiment continues to be driven by the recent good news about the efficacy of coronavirus vaccines in development and the expectation that the OPEC+ meeting at the end of this month could see the group extend current cuts by 3-6 months.”
OPEC+, which groups the 13-member Saudi-chaired Organization of the Petroleum Exporting Countries with 10 oil producing allies led by Russia, is expected to extend output cuts into the new year in an effort to avoid a global glut of inventories.
The group, which meets on Nov. 30 and Dec. 1, is looking at options to delay by at least three months from January the tapering of their 7.7 million barrel per day cuts by around 2 million bpd.
But with COVID-19 cases accelerating in many parts of the world, raising the risk of further economic restrictions, OPEC+’s efforts will come up short if demand drops faster than supplies.
More than have contracted COVID-19 since January and more than 255,000 have died from complications caused by the virus, which continues to infect over 100,000 people a day in the United States.
Outgoing Administration, Other Snafus Remain Risk To Pandemic
The crisis has been worsened by the Trump administration’s detached approach to the pandemic since President Donald Trump lost the Presidential election to his challenger Joseph Biden in the Nov. 3 election. Trump’s refusal to acknowledge Biden’s win and facilitate his transition is also depriving the incoming administration of early tools to fight the virus.
Delivery and other unknown logistical problems in the U.S. vaccine program could also force delays in bringing the shots to the market. Health authorities might fall short of their target to get as many people as possible immunized in time to prevent further spread and hazard from the virus.
In such a scenario, restrictions on social and economic activity might have to continue longer than thought, adversely impacting risk sentiment.
As trading in oil opened for a new week, New York-traded , the leading indicator for U.S. crude, was up 28 cents, or 0.7%, at $42.70 per barrel by 1:46 AM ET (0646 GMT) on Monday. WTI rose 5% last week, and has gained a cumulative 18% over the past three weeks.
London’s , the global benchmark for oil, rose 34 cents, or 0.8%, to $45.41. Brent gained 5% last week, just like WTI, and a total of 20% over the past three weeks.
Chart-wise as well, WTI and Brent appear in an upward trajectory for now.
Crude chartist Dhwani Mehta said in a blog post on FX Live that oil bulls await a breach of WTI’s $43 threshold last tested on Nov. 11.
Investing.com also has a “Strong Buy” call on WTI, with its peak target of $42.78 already breached by Monday’s high of $42.97.
Gold Drifts As COVID Stimulus Talks Make Little Headway
Gold prices rose as well on Monday, rebounding from a lethargic previous week where news of COVID-19 vaccine developments constantly weighed on sentiment in the safe-haven.
Gold has also been weakened by the constant wavering of Senate Republicans and the Trump administration on the fiscal relief needed to fight the pandemic. Trump’s election loss to Biden has cast further doubt on the possibility of an economic stimulus being passed in the so-called lame duck session of the Senate ahead of Biden’s inauguration on Jan. 20.
New York-traded hovered at $1,873 an ounce, up $1.15, or 0.1%. The benchmark U.S. gold futures contract lost $16.45, or almost 1% last week.
The , which reflects real-time trades in bullion, was up $4.48, or 0.2%, at $1,875. Like gold futures, bullion also lost almost 1% last week.
Jeffrey Halley, Sydney-based analyst for New York’s OANDA, said in the bigger picture, gold remained confined to a $1850-$1900 range. But after a fall below the multi-month trendline support of $1870.00 last week signaled a near-term bearish technical development, Halley said:
“The trendline now forms resistance, and today it is at $1,876.50 an ounce. The 50-Day Moving Average follows that at $1898 an ounce.
“The technical picture still suggests the risks for gold are skewed to the downside. If we see emergency vaccine approval in the next two weeks, those risks could magnify. A daily close below the $1845/$1850 an ounce support zone will signal deeper losses, initially targeting the 200-Day Moving Average at $1,795 an ounce today.”
Investing.com also has a “Strong Sell” call on December gold, with a baseline support of $1,864.05.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. He does not own or hold a position in the commodities or securities he writes about.