- Oil Climbs Above $52 as Saudis, Russia Favour Output Cut Extension
Oil jumped to a three-week high on Monday following comments from both the Saudi Arabia and Russia to extend production cut until the first quarter of 2018.
The commodity which plunged to a 5-month low two weeks ago rose above $52 a barrel on Monday after energy ministers from the two top OPEC exporting nations said supply cuts should be extended for at least 9 months. Which is more than the 6 months stipulated in the accord signed in November 2016.
Brent crude gained 3.1 percent to trade at $52.46 to a barrel as at 1:56 pm Nigerian time, while West Texas Intermediate (WTI) rose 3.2 percent to $49.48.
However, experts have cautioned that relentless pressure from U.S. producers is likely to contain the new surge in prices.
“Every time oil tests that level…you see clients trading around it,” said James Butterfill, Head of Research and Investment Strategy at ETF Securities. “Every time it goes below that $50 a barrel level, it’s a buying opportunity and roughly when it hits about $50, we see a lot of selling at that point.”
Accordingly, the director of oil and gas at Cantor Fitzgerald Europe, Sam Wahab agreed that the growing U.S. production remains OPEC key issue.
“A further nine U.S. oil rigs were added last week, bringing the total count up to 712 – the most since April 2015. It is very likely this trend will continue at current oil prices,” Wahab added.
While oil has gained support from supply deal, inventories remain high globally. Keeping prices below $60 a barrel as first projected by the Saudi Arabia.
“Surge in production from both the Libya and Nigeria will likely necessitate equal cut from Russia and Saudi Arabia as both nations were exempted from production cut,” said Samed Olukoya, a foreign exchange research analyst at Investors King Ltd. “Therefore, for the proposed extension to be effective or taken serious by the market, other members must support the two giants, while OPEC state clearly its exit strategy rather than hoping demand will grow over time.”
OPEC and non-OPEC nations are to meet on May 25 in Vienna to decide policy. Egypt and Turkmenistan are invited to attend.
Silver Joins Haven Assets That Pullback on Dollar Strength
Silver Pulls Back on Dollar Strength
Silver pulled back on Friday after Donald Trump-led administration announced it was working on a new stimulus package to ease economic burden of the American people.
The United States dollar gained as investors jumped on it to hedge against US-China trade tensions.
Silver that has risen to almost eight years high of $29.84 on Thursday pulled back after the US government announced its plan on a new stimulus package.
The haven asset, like Gold, pulled back to $27.97 on Friday during the New York trading session.
“While there are no early chart clues to suggest the gold and silver markets are close to major tops, both are now getting short-term overbought, technically, and are due for downside corrections in the uptrends,” Kitco Metals senior analyst Jim Wyckoff said in a note.
“And remember that with the higher volatility and bigger daily price gains seen at present, there will also be bigger downside corrections when they come.”
Gold Pullback on Dollar Strength on Friday
Gold Pauses its Bullish Runon Dollar Strength
Gold pulled back from its record rally on Friday after the US dollar received a boost from the new stimulus.
The world’s safe-haven asset pulled back from $2074 per ounce it traded on Thursday to $2030 on Friday during the New York trading session.
“We’ll see some pullback (in gold) from these levels with USD bottoming for a while and maybe even see some strength in the USD in the near term, which will reverse these gains but not entirely,” said Spencer Campbell, director at SE Asia Consulting Pte Ltd. “People will be looking to re-enter the market on any pullbacks in precious metals as the medium to longer term views are significantly higher.”
Gold rose to an all-time high of $2074 on Thursday after rising over 35 percent on the back of the COVID-19 pandemic. However, economic uncertainties due to the second wave of COVID-19 continues to support gold rally and expected to continue until a concrete solution or vaccine is discovered.
“There are mixed signals that the economy is recovering and some of the signs of recovery are relatively superficial as they show aggregate figures and not how medium and small enterprises continue to suffer,” said Jeffrey Christian, managing partner of CPM Group.
“We have a very long way to go before we see a proper economic recovery.”
Finances of International Oil Companies Suffered in the Second Quarter
Finances of IOCs Plunged Amid COVID-19 Pandemic in the Second Quarter
Global leading oil companies suffered substantial losses in the second quarter, according to their various financial statements published in recent weeks.
On Thursday, Royal Dutch Shell posted $18.9 billion loss in the second quarter of 2020, far below the profit of $3.5 billion posted in the same quarter of 2019.
This, the company attributed to the plunge in global oil prices in 2020 due to the COVID-19 pandemic. Shell warned that oil demand remained uncertain, adding that it had cut its exploration plans for this year from about 77 wells to just 22.
This was after the price of Brent crude oil plunged to $15 per barrel during the peak of COVID-19 pandemic while the price of West Texas Intermediate crude oil dipped to -$37 per barrel, the lowest on record.
Also, the company said it has reduced its capital expenditure for the year from the initial $25 billion to $20 billion amid a plunge in revenue and demand for the commodity.
Similarly, ExxonMobil reported a $1.1 billion loss, its biggest decline on record. The oil company also announced it would be lowing spending by 30 percent in 2020 to about $23 billion.
Among the various oil companies posting negative financial statements for the quarter was Chevron Corporation, the company reported $8.3 billion decline in the second quarter of the year. The lowest ever posted by the oil giant in almost three decades.
Chevron, therefore, warned that the havoc caused by COVID-19 pandemic in the energy sector might continue to weigh on earnings.
“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.
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