Energy & Precious Metals – Weekly Review and Calendar Ahead

By Barani Krishnan

Investing.com - With multiple price drivers pulling crude futures in various directions last week, it ultimately came down to either of two things that would matter: the world’s largest consumer of raw materials which could see its growth slow from higher tariffs, or a Middle East producer whose impact under U.S. sanctions could result in one of oil’s biggest upheavals.

Traders overwhelmingly chose China, sending U.S. West Texas Intermediate futures down for a third straight week, and U.K. Brent, the global oil benchmark, lower for a second week in a row.

U.S. President Donald Trump’s threat since the start of the week to raise tariffs on $200 billion of Chinese goods, carried through on Friday, spooked the market more than the worsening impact of the U.S. oil embargo on Iran that’s resulting in fewer and fewer barrels arriving from the fourth largest oil exporter in OPEC.

With the Organization of the Petroleum Exporting Countries in Vienna, and the Paris-based International Energy Agency both scheduled to issue their regular monthly reports and forecasts on supply/demand this week, the pendulum could swing back to Iran, analysts say.

With gold too, the China factor held supreme. Both bullion and futures of the yellow metal rose modestly on the week as the imposition of higher U.S. tariffs on China boosted gold’s safe-haven edge.

Energy Review

After giving hope to market bulls at the 11th hour by citing “a beautiful letter” by China's leader Xi Jinping on how the two nations could cooperate on trade, Trump went opposite to expectations and raised to 25% the previous 10% tariff on Chinese imports into the U.S.

While the higher tariffs would surely lead to some dampening effect on the Chinese economy, uncertainty over what will happen to global trade with the escalating clash between the world’s top two economies had a greater impact on oil traders. China, for one, promised to retaliate, telling the Trump administration to brace for “reciprocal” moves.

But OPEC’s forthcoming monthly report due on Tuesday and the IEA’s take on global oil supply-demand due on Thursday could turn traders attention back to oil-market specifics. Iran looks set to lose about 100,000 barrels per day or more from the continued U.S. squeeze on its oil exports, which are already believed to have fallen to around 800,000 bpd since the start of the year.

U.S. Secretary of State Mike Pompeo insisted in an interview with CNN that “simple math” showed there’d been no disruption to the overall global supply of crude since the U.S. withdrew from the 2015 Iran nuclear deal under the Obama administration.

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Yet, Reuters reported that Chinese refiners have skipped bookings for Iranian cargo loadings in May on worries that taking oil from Tehran could invoke U.S. sanctions on them and cut them out of the global financial system. China is Iran’s largest oil customer with imports of 475,000 bpd in the first quarter of this year, according to Chinese customs data. The Chinese have not yet found sellers to fill the supply-gap in the market at the prices they want as Saudi Arabia and others in OPEC are asking a lot more for their oil compared to Iran.

Aside from the Iranian sanctions, contamination in Russia's Druzhba oil pipeline, a key conduit for crude into Eastern Europe and Germany, has hit Russian exports as well, further putting a floor under crude markets. Scott Shelton, energy futures broker at ICAP in Durham, North Carolina, said in an email to Investing.com last week “The optimism of a quick return of Russian exports is becoming a major question to many traders in the market.”

Geopolitical tensions are also rocking the oil market.

The U.S. Maritime Administration said in an advisory last week U.S. commercial ships including oil tankers sailing through key Middle East waterways could be targeted by Iran in one of the threats to U.S. interests posed by Tehran.

The U.S. military, meanwhile, said that a number of B-52 bombers would be part of additional forces being sent to the Middle East to counter what the Trump administration calls "clear indications" of threats from Iran to U.S. forces there. The Islamic Republic has dismissed the U.S. contention of a threat as "fake intelligence".

Energy Calendar Ahead

Tuesday, May 14

OPEC monthly report

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, May 15

IEA monthly report on global oil supply-demand

The EIA weekly report on oil stockpiles.

Thursday, May 16

EIA weekly natural gas report

Friday, May 17

Baker Hughes weekly rig count.

Precious Metals Review

While Trump may have delivered the knuckle blow he promised China on new trade tariffs, gold prices may not take off like a rocket beyond $1,300 like some gold bugs think.

While the yellow metal could certainly benefit if U.S.-China trade angst leads to a further battering in equities, its mixed technicals and fundamentals mean that its reach as a safe-haven will be limited.

Spot gold, reflective of trades in bullion and gold futures traded on the Comex division of the New York Mercantile Exchange posted modest gains for the week after the U.S. tariff hike on China.

Philip Streible, senior strategist for metals for RJO Futures in Chicago, said gold has run into stiff technical resistance, trapped between the 100-day moving average high of $1,300 and the 200-day moving average low of $1,267.

Precious Metals Calendar Ahead

Monday, May 13

FOMC member Rosengren speaks

FOMC member Kaplan speaks

Tuesday, May 14

ISM Manufacturing (April)

German CPI (MoM) (Apr)

FOMC member Williams Speaks

FOMC Member George Speaks

China Industrial Production (YoY) (Apr)

China Retail Sales (YoY) (Apr)

China Unemployment

Wednesday, May 15

Core Retail Sales (MoM) (Apr)

NY Empire State Manufacturing Index (May)

U.S. Industrial Production (YoY)

Thursday, May 16

U.S. Continuing Jobless Claims

U.S. Housing Starts (Mom) (Apr)

U.S. Initial Jobless Claims

U.S. Philadelphia Fed Manufacturing Index (May)

Friday, May 17

Euro Core CPI (YoY) (Apr)

U.S. Michigan 5-Year Inflation Expectations (May)

U.S. Michigan Consumer Expectations (May)