By Barani Krishnan
Investing.com -- The oil bull is still in the driving seat, trying to see the Covid-19 off in the rearview mirror -- as the Trump administration hopes will happen.
Gold bugs, meanwhile, saw their $1,800 dream come through, though bigger paydays of $2,000 an ounce and beyond might have to wait as new bouts of volatility are expected from the face-off between risk and the second wave of the coronavirus.
Upbeat U.S. jobs numbers helped oil prices jump over 4% on the week, gaining more than they lost the previous week. It was the second time in a month that oil bulls had pulled off such a feat, despite the resurgence in U.S. Covid-19 cases and threats of fresh curbs on the economy.
The upbeat jobs numbers for June garnered much of the attention across markets. But continuing weekly jobless claims increased, suggesting a large part of the labor market wasn’t coming back yet.
The rising Covid-19 toll across the U.S. Sunbelt also suggested that new economic lockdowns might be in order, stunting the nascent recovery seen over the past two months.
The United States has now confirmed more than 2.6 million cases of Covid-19, the disease caused by the coronavirus, and more than 127,000 people have died, according to data compiled by Johns Hopkins University. The pandemic, which hit New York and surrounding states in the Northeast hard in the Spring, is now surging in Arizona, Florida and Texas and elsewhere in the South and West.
On Friday, seven U.S. states posted a record number of new COVID-19 cases. In Texas, the number of hospitalized Covid-19 patients was up 60%, and in Arizona, it rose 27%, versus a week earlier. In Florida, the number of known cases grew by nearly 11,500 since Friday morning to reach a total beyond 190,000.
Also at a Trump political rally on Friday, some 7,500 people packed an outdoor amphitheater for a pre-July 4 holiday event, despite health officials saying such large gatherings could be a “super-spreader” for the virus. Many in the crowd did not wear masks, following the president.
Despite the upbeat mood in oil, some analysts said the market could have trouble maintaining its upward trajectory if some of the highly-infected states went into another lockdown to control the spread of the virus.
“As U.S. hospitals continue to see surges with COVID-19 cases, the June jobs gain will be shrugged off as the massive spike in cases from the Southeast to Southwest region will likely delay the reopening momentum in the economy and stifle the strong recovery in jobs seen this month,” said Ed Moya, analyst at New York’s OANDA.
“Appetite for risky assets could go nowhere as the June jobs gain was almost too good and will lead many to believe that the next U.S. fiscal package for economic recovery might be smaller.”
Analysts at Goldman Sachs said global oil demand could take another two years to return to pre-pandemic levels, and even then, the market for jet fuel might not have recovered.
One of Wall Street’s most influential voices in commodities trading, Goldman said world demand for crude would likely decline by 8% in 2020, rebound by 6% in 2021 and “fully recover” to pre-coronavirus levels by 2022. It cited a pick-up in commuting, a shift to private transportation and higher infrastructure spending as potential trends.
Jet fuel could, however, remain the “biggest loser” as consumer confidence on flying will stay low so long as there’s no safe and widely available vaccine. Goldman predicted that the market for aviation fuel might not reach pre-pandemic levels until 2023 at least.
Gold shattered the $1,800 ceiling long-targeted by the safe-haven crowd, closing up a fourth straight week despite the U.S. economy adding 4.8 million jobs in June versus a forecast growth of 3 million jobs.
But those hoping to rewrite the 2011 record highs of above $1,900 with even loftier prices of $2,000-$2,500 will have to wait, said analysts.
“I’m not trying to dampen the enthusiasm of the rally to a new contract high,” gold commentator James Hyerczyk wrote after Tuesday’s successful run past $1,800.
“I’m just making an observation that the buying could have actually been weak, and perhaps not even fueled by new longs at all, but rather short-covering,” added Hyerczyk. “This is to inform traders that they should be careful about chasing the market higher at current price levels.”
Energy Markets Review
New York-traded West Texas Intermediate crude settled down 37 cents, or 0.9%, at $40.28 per barrel in Friday’s electronic trade amid the markets holiday in observance of the U.S. Independence Day holiday. In Thursday’s regular trade, WTI settled up 83 cents, or 2.1%, at $40.65.
London-traded Brent crude slid 37 cents, or 0.8%, to settle at $42.77 on Friday.
Yet, for the week, both WTI and Brent rose.
WTI climbed 5.6%, way more than the 3.2% it lost last week. Two weeks ago, there was a similar occurrence when the U.S. crude benchmark gained 9.6% versus the previous week’s 8.3% decline.
In Brent’s case, the current week’s gain of 4.3% more than made up last week’s slide of 2.8%. Similarly, the global crude benchmark was up 8.9% two weeks ago, after a drop of 8.4% a week earlier.
Oil’s weekly gain was helped by the Energy Information Administration’s reporting of a 7.2 million-barrel drawdown in U.S. crude stockpiles for the week ended June 26 — about 10 times more than forecast.
While crude stockpiles slumped, gasoline inventories rose 1.2 million barrels, compared to a draw of 1.7 million barrels a week ago. Distillates stockpiles provided a better case for oil bulls, sliding by 593,000 barrels versus, compared to a build of nearly 250,000 barrels previously.
Crude production, meanwhile, remained unflinching at an estimated 11 million barrels per day, suggesting the output cutbacks seen over the last three months were all but over as the 300% rally in WTI from April’s price lows encouraged U.S. drillers to turn their taps back on. The steadying crude production affirmed the dwindling cuts on U.S. oil rigs, which showed a decline of just one unit last week.
Energy Calendar Ahead
Monday, July 6
Private estimates on Cushing oil inventories from Genscape.
Wednesday, July 8
American Petroleum Institute weekly report on oil stockpiles.
Thursday, July 9
EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories
EIA weekly report on natural gas storage
Friday, July 10
Baker Hughes weekly survey on U.S. oil rigs
Precious Metals Markets Review
U.S. gold futures on Comex settled down $2.40, or 0.1%, at $1787.60, after hitting an intraday high at $1,803.95. It was the highest ever reached by a benchmark Comex contract for gold since the all-time peak of $1,911.60 set in September 2011.
Spot gold last traded up 62 cents, or 0.03%, at $1,775.99 per ounce on Friday, after a session high of $1,789.48 earlier in the week. That was the highest for bullion since its September 2011 record of $1,920.85.
For the week, Comex gold rose 0.5% while spot gold gained 0.2%
“I believe that with additional lockdowns happening globally that central banks will continue to support the market at any cost,” said Philip Streible, Chief Market Strategist at Blue Line Futures in Chicago.
“This should result in the Fed's balance sheet continuing to grow and in turn provide underlying support in the precious metals markets. Gold should continue to track higher with $1900 by Labor Day, $2000 by Thanksgiving.”
* Disclaimer: Barani Krishnan does not own or hold a position in the commodities or securities he writes about.