Precious Metals & Energy – Weekly Review and Future Calendar

The storms of the Atlantic hurricane season are likely to head toward the U.S. Gulf Coast like howling banshees in the coming weeks. Talk of a recession could intensify after the Atlanta Fed forecast a second consecutive quarterly decline this year. The two events will at some point collide, defining the dynamics and future of oil and gas markets. Hurricanes come and go every year. But a hurricane in 2022 could have a ripple effect on energy infrastructure, supply and prices, with production already tight due to sanctions on Russia. While OPEC+ is clearly inadequate to deliver the production that consumer countries want, U.S. shale activity is slower than ever to return to its pre-pandemic glory. “You can’t afford to lose a single barrel this summer. That’s the reality,” said John Kilduff of New York energy hedge fund Again Capital. And you might not want to lose a single cubic meter of gas. The Energy Information Administration (EIA) said U.S. natural gas inventories increased by 82 billion cubic feet in the week ended June 24, compared with market expectations of 74 billion cubic feet. The 74 billion cubic feet were expected in the week ended June 17, compared with expectations of 65 billion cubic feet. Any additional inventories this summer will be invaluable to Americans struggling with inflation that remains at a 40-year high despite three Fed rate hikes and promises of more. U.S. natural gas storage is expected to be at least 300 billion cubic feet below the five-year average this year because of lower natural gas production and sanctions. The situation with gas supplies, which until three weeks ago seemed tighter than oil, was showing little sign of relief. That all changed with the explosion at the Freeport LNG facility on the Texas Gulf Coast on June 9. Freeport accounted for about 20% of all U.S. LNG (liquefied natural gas) transactions, liquefying 2.1 billion cubic meters of natural gas per day. Initially, it was estimated that the outage would only take about a million tons of LNG off the market. But later it was estimated that the disruption could last until early September, affecting at least 180 billion cubic meters of gas in total. On Thursday, the date the plant could be restored was pushed back to October. Analysts say the amount of gas that is being held idle or not liquefied by Freeport would be equal to about 55% of the current storage gap, with the final figure depending on how hot the U.S. and Europe get and how much cooling domestically and European LNG demand results. Before the Freeport explosion, gas in the U.S. reached a 14-year high of $9.66 on June 8. At the time of writing, it is at $5.62. On Thursday, it hit a 13-week low of $5.36. Gas is up only 51% annually from its peak of nearly 160% three weeks ago. Almost all of that loss was due to the Freeport explosion. NatGasWeather said weather models for the first half of July show most of the southern U.S. will be hot in the 32-37 degree range. “While not as hot as July 1-9, July 10-13 is still bullish,” NatGasWeather said, citing naturalgasintel.com. “Overall, the next 15 days are bullish.” But some don’t think the summer heat will hurt stocks too much. “Over the long term, storage deficits are expected to ease relative to the five-year average as Freeport (and more production) eases the tightness in the market,” Gelber & Associates analysts wrote in an email to clients Wednesday, seen by Investing.com. Gelber’s email continues: “The storage deficit, which is expected to fall from more than 300 billion cubic meters (bcm) over the next four weeks to less than 280 billion cubic meters (bcm) based on current weather models.” So a hurricane hitting the U.S. Gulf could seriously alter gas supply dynamics. Last year, during Hurricane Ida, more than 77% of U.S. Gulf gas production was off the table by the first week of September. As for oil, Julian Lee, a columnist for Bloomberg, noted that record volumes of crude were being transported from terminals on the U.S. Gulf Coast to buyers in Europe and Asia. A major storm or series of storms like the one we saw in 2005 or 2008 would put those flows at risk for weeks, perhaps. “Strong winds, high tides and storm surges would carry the storm’s impacts beyond U.S. shores, putting overseas shipments at risk. Crude and refined product exports are close to 10 million barrels per day,” Lee said. Kilduff agreed, saying the U.S. energy infrastructure is “more vulnerable than ever to storms.” “The reason is the global situation. In years past, storms would come but not dethrone us. This year, any of these storms could devastate the global oil market.” Another factor that could be equally damaging for oil could be the developing U.S. recession. Economists say the U.S. could be witnessing the beginnings of a real economic shakeout, but it is too numb to notice because of consumers who have been miraculously resilient after two years of pandemic support, a housing market that is still buoyant and a stock market that has rebounded after a few days of sell-off. But U.S. consumers can’t be heroes forever, and the economic cliff could fall much faster than expected, analysts warn. In oil markets in particular, “recession expectations have created a two-way price action in recent weeks, preventing unsustainable increases in crude prices even as China’s lockdowns are lifted,” said Craig Erlam of OANDA. Oil & Gas: Market Activity and Price Summary Crude oil prices rose for July on fears of fresh supplies from Libya, which has called for force majeure on exports, and Norway, which has been on strike by oil workers. Barely 24 hours after the June tumble, that suggested oil bulls have regained at least some of their lost mojo despite fears of a recession threatening the outlook for the market in the coming months. WTI traded at $108.46 after officially closing the session up $2.67. It closed June down more than 7%. Brent rose $2.60 to $111.63 before finding buyers at $111.48. It fell about 6% in June. Natural gas fell 31 cents to $5.73 on Friday before falling to $5.62. Its June decline was more than 33%. Oil & Gas: Price Outlook Sunil Kumar Dixit, senior technical analyst at skcharting.com, said that as long as WTI stays above $104 and does not fall below $101, further gains are expected towards the 50-Day Exponential Moving Average at $110.20 and the Daily Middle Bollinger Band at $1113.20. “If the bullish momentum above $114 attracts enough buyers, then a fresh short-term rally will target $116-119-121.” Gas, on the other hand, is still technically weak after suffering one of its worst losses in history, from $9.66 to $5.35. “The bears are targeting the monthly Middle Bollinger Band at $4.47 for the next leg, followed by the 200-month Simple Moving Average at $4.25.” A steady break above $6.54 could extend Friday’s rally to the 50-Day Exponential Moving Average at $7.22, Dixit said. But the rally is bearish, with the daily middle Bollinger Band of $7.32 keeping the gains short-lived. Gold: Market Activity and Price Summary Gold for August delivery finally traded at $1,812.90. It fell $5.80 on Friday to $1,801.50. During the session, August delivery fell to $1,783.40, its lowest since Dec. 9. Recovery aside, this week has been a great one for gold, which has lost about $30 in total and is now in the red. This is its third week in the red, after two weeks of losses of 0.6% and 1.9%. Gold is down more than 2% in June. The Fed is not the only enemy for gold: India’s tax authorities are also there. Bullion fell to a seven-month low on Friday after the government in New Delhi raised import duties on gold to support the rupee as July began. India, the world’s largest consumer of bullion, has raised its basic import duty on gold from 7.5% to 12.5%. While the third quarter usually sees strong physical demand due to festivals, the move will have an immediate impact on demand, Ajay Kedia, director at Kedia Commodity in Mumbai, said, quoted by Reuters. The Fed’s interest rate weapon has wounded bulls for a third week as policymakers at the central bank have not backed down on their goal of taming the inflation monster by doubling the Fed funds before the end of the year. Gold: Price Outlook Dixit said a move higher could lead to a sustained rally above $1,815, taking gold to the Daily Middle Bollinger Band of $1,832, the 200-Day Simple Moving Average of $1,846 and the 50-Day Exponential Moving Average of $1,850. However, according to Dixit, who uses spot bullion prices for his analysis, gold’s rejection of the $1,846-$1,850 range could trigger a swift breakout towards $1,815-$1,800-$1,780. He said this is the momentum point for a deep correction towards the 50-Month Exponential Moving Average at $1,670 and the 200-Week Simple Moving Average at $1,647. “The tug-of-war between the shorts targeting $1,700-$1,650 and the bulls looking to buy on dips could pressure the yellow metal in a lower range before a larger and more significant bull run begins.”