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Oil Gains as OPEC Rekindles Hopes of Output Freeze

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All it took was a few words from OPEC to encourage oil bulls.

Money managers increased wagers on rising crude prices by the most since January as futures rebounded from a three-month low. Prices jumped after OPEC’s president said Aug. 8 the group will hold informal talks in Algiers next month and Saudi Arabia signaled Aug. 11 it’s prepared to discuss taking action to stabilize markets.

“The statement certainly achieved its purpose,” said Daniel Yergin, vice chairman of IHS Markit. “The Saudis saw bearish bets had really driven down the prices.”

Talks between OPEC members and other producers may result in action to stabilize the market, Saudi Arabia’s Energy Minister Khalid Al-Falih said. Members of the Organization of Petroleum Exporting Countries are in “constant deliberations,” according to a statement on OPEC’s website attributed to Mohammed bin Saleh Al-Sada, Qatar’s energy and industry minister and the group’s current president.

Hedge funds bolstered their long position in West Texas Intermediate crude by 17,154 futures and options combined during the week ended Aug. 9, according to the Commodity Futures Trading Commission. WTI rose 8.3 percent to $42.77 a barrel in the report week. Prices advanced 1 percent to $44.95 a barrel as of 9:33 a.m. London time on Monday after posting the biggest weekly gain since April.

“The Saudis are very conscious of the financial markets and how they exaggerate price moves,” Yergin said.

Differences between Saudi Arabia and Iran caused the demise of a proposal to freeze production at an April summit in Doha. The kingdom insisted it wouldn’t restrain output without commitments from all OPEC members, including Iran, which has boosted crude production and exports after years of sanctions were lifted in January.

“A freeze may be on the table, maybe more,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “The Saudi comments leave the door open to anything, as opposed to Doha where they killed the deal. The fact that the Saudis are open to any action is an important signal. The Iranians have pretty much done what they wanted to do, which will make them more open, and the Saudis seem open as well.”

Refinery Demand

Refiners around the world will process a record 80.6 million barrels a day of crude this quarter to absorb all-time high production from several Persian Gulf producers, the International Energy Agency said Aug. 11.

“The market is moving towards balance with a huge overhang,” Yergin said. “We see supply and demand roughly in balance, and if there are no additional disruptions prices should be in the mid $50s next year.”

Rising U.S. oil stockpiles and weakening demand from the nation’s refineries may weigh on prices. Crude supplies rose by 1.06 million barrels as of Aug. 5, Energy Information Administration data show. Over the past five years, refiners’ thirst for oil has fallen an average of 1.2 million barrels a day from July to October.

Money managers’ long position in WTI rose to 322,594 futures and options, the highest since May 2015, CFTC data show. Shorts, or bets on falling prices, increased 0.7 percent and were at a record for a second week. Net longs advanced 18 percent, the biggest jump since March.

Other Markets

In other markets, net-bearish bets on gasoline shrank 69 percent to 1,277 contracts. Gasoline futures rose 2.6 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel tumbled 72 percent to 1,984 contracts. Futures advanced 5.7 percent.

Not all analysts are convinced that the Saudi comments will translate into action.

“The Saudi statement could mean anything,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “They said that there will be informal meeting of OPEC members on the sidelines. That could be anything from coffee and cake on a terrace to a closed-door meeting to decide on specific production proposals.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Gold

Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal

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Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.

Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.

While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.

“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.

“Gold remains an yield story and that yield story is very much tied back to the tapering story.”

A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.

“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.

A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.

Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.

Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.

Silver rose 0.9% to $22.61 per ounce.

Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.

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Crude Oil

Brent Crude Oil Near $80 Per Barrel Amid Supply Constraints

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Oil prices rose for a fifth straight day on Monday with Brent heading for $80 amid supply concerns as parts of the world sees demand pick up with the easing of pandemic conditions.

Brent crude was up $1.14 or 1.5% at $79.23 a barrel by 0208 GMT, having risen a third consecutive week through Friday. U.S. Oil added $1.11 or 1.5% to $75.09, its highest since July, after rising for a fifth straight week last week.

“Supply tightness continues to draw on inventories across all regions,” ANZ Research said in a note.

Rising gas prices as also helping drive oil higher as the liquid becomes relatively cheaper for power generation, ANZ analysts said in the note.

Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as under-investment or maintenance delays persist from the pandemic.

China’s first public sale of state oil reserves has barely acted to cap gains as PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.

India’s oil imports hit a three-month peak in August, rebounding from nearly one-year lows reached in July, as refiners in the second-biggest importer of crude stocked up in anticipation of higher demand.

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Crude Oil

Oil Holds Near Highest Since 2018 With Global Markets Tightening

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Crude Oil - Investors King

Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.

Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.

China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.

Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.

“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.

Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.

At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.

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