Precious Metals & Energy – Weekly Review and Calendar Ahead

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© Reuters.

By Barani Krishnan

Investing.com – Jerry Jones, majority shareholder of Comstock Resources (NYSE:CRK), is being roasted on Twitter for suggesting the Texas-based shale gas driller hit the “jackpot” from skyrocketing gas prices as millions of Texans were freezing this week, some to death, without gas to heat their homes.

Without debating Jones’ morality, let’s analyze if the so-called jackpot in gas prices will continue. Let’s also study whether the bears in oil may get lucky with a deeper correction in crude markets after Friday.

As the week wound down, Texas energy firms prepared to restart oil and gas production after days of frozen shutdowns as electric power and water service slowly resumed at darkened oil fields and refineries.

It’s not yet clear how long it will take to restore all the lost supply. But oil traders and executives hope most of the production lost will return within days as temperatures rise and power becomes available.

At its peak, nearly 40% of U.S. oil output was shuttered due to the extreme cold and associated blackouts. Three-quarters of the U.S. frack fleet was lost this week, leaving 41 crews working to blast water, sand and chemicals underground to release trapped oil and gas, Matt Johnson, chief executive officer at Primary Vision Inc said.

Already, companies, including Marathon Oil Corp (NYSE:MRO) and Devon Energy Corp (NYSE:DVN), have begun using restored power from local grids or generators to restart output, according to people familiar with the matter.

Chevron Corp (NYSE:CVX) has also begun restoring shale output, although it said it will prioritize natural gas production.

ConocoPhillips (NYSE:COP), the top U.S. independent oil producer, is ready to bring back full operations across its U.S. operations outside of Alaska once power and other infrastructure outages end. But like Chevron, its focus will be gas first.

“The majority of our Permian and Eagle Ford volumes remain offline,” Conoco spokeswoman April Andrews said, referring to the two major Texas oil fields.

At Friday’s settlement, the front-month natural gas contract on New York’s Henry Hub did a final trade of $3.08 million metric British thermal units, after officially settling the session at $3.07 per mmBtu. It was up 5.4% on the week. The benchmark gas contract had, in fact, gained four weeks in a row, rising 26% since the week ended Jan. 15.

But Friday’s settlement in gas was also down 0.4% on the day and significantly lower than the week’s high of $3.32. That means one thing: gas prices are coming off — and could continue correcting.

Warmer temperatures are on the way, paving the way for a thaw in Texas and elsewhere.

“The worst of the coldest temperatures have passed as conditions gradually moderate in the days ahead,” forecaster NatGasWeather said, adding that rather than lows of minus 20 degrees, the mid-continental region to south east regions could see temperatures as high as the 30s.

But there’s also a theory that Henry Hub futures could hit $4 before this winter is through, in the event of more extremities like Texas.

“We do caution, the start of March needs close watching because it wouldn’t take much of a colder trend for the pattern to quickly look more intimidating,” NatGasWeather said in an advisory.

The last time Henry Hub gas got to $4 levels was between November and December 2018, when it traded at highs of between $4.50 and nearly $5.

As I noted in an analysis on Thursday, to get to $4, Henry Hub futures need to rise another 25%. That might be a big ask, especially if the worst of the winter is over. NatGasWeather cautions just as much, saying mild trends in temperature could take on “a rather bearish stance.”

So back to Jones: It appears that the jackpot for natural gas that the Comstock Resources billionaire was so besotted about this week might start dwindling soon — unless there are more Arctic surprises ahead.

On the oil front, crude prices tumbled more than 2% Friday for their biggest slump since January on worries that refineries could be the next casualties from the Texas storms — resulting in a pile-up of crude stocks.

While oil production was resuming again in Texas on Friday, lack of demand from refiners will likely lead to builds in crude stocks over the coming weeks, even though around 3.5 million barrels per day of U.S. oil output has been shut, ANZ Research said in a note.

Analysts at Citigroup said in a separate note that some U.S. refineries might bring forward about 500,000 bpd of maintenance work normally scheduled for the spring over next month, ahead of the summer driving season.

Crude prices were also pressured Friday by reassurances from Iran’s foreign minister that the Islamic Republic will “immediately reverse” its nuclear program once U.S. sanctions are lifted.

Mohammad Javad Zarif reiterated Tehran’s position in response to Washington’s offer to revive talks between the two sides.

The Biden administration said on Thursday the United States was ready to talk with Iran on reinstating a 2015 agreement aimed at preventing the country from acquiring nuclear weapons.

“There was some selling on reports that Iran is promising to behave and that the U.S. may once again join the Iranian nuclear talks,” said Phil Flynn, analyst at Chicago’s Price Futures Group.

The nuclear deal, signed under former president Barack Obama, was abandoned nearly three years ago by his successor Donald Trump.

President Joseph Biden, who was vice president to Obama, says he’s keen to revive the agreement if Iran, which has enriched uranium capability by up to 20% to protest Trump’s crippling sanctions on Iranian oil, rolls back its actions.

Iran, at its height of production before Trump’s sanctions, pumped as much 4 million bpd and exported at least half of that.

Analysts said the impact of Tehran’s production might be mitigated by output cuts by Saudi Arabia and other members and allies of the Organization of the Petroleum Exporting Countries (OPEC), although market jitters over the nuclear talks could still put a lid on oil’s three-month long rally.

On the precious metals side, gold prices advanced for a second straight day on Friday, halting a six-day slide that took it to June lows.

Despite the yellow metal’s ability to staunch more bleeding, support for the so-called inflation hedge and safe haven appeared feeble at best.

“Gold is having a torrid time,” said Craig Erlam, markets’ strategist for the online brokerage, OANDA.

“Even the pullback we’ve seen in gold the last couple of days couldn’t save it, with higher real yields in the U.S. instead piling the misery on the yellow metal. It fell below $1,760 today, the lowest it’s been since early July, in another sign that its near-term outlook is looking far from bright.”

The idea of gold as an inflation hedge, or safe-haven against most economic and political troubles has broken in recent months, since vaccine breakthroughs for Covid-19 pressured the yellow metal off August record highs of nearly $2,090.

With President Joe Biden embarking on a new $1.9 trillion stimulus after the near $4 trillion issued under his predecessor Donald Trump, the potential fiscal U.S. deficit and debt under such spending should weigh on the dollar rather than gold.

Yet, the Dollar Index has risen instead, spurred by a spike in the U.S. 10-year Treasury yield, dealing gold a series of setbacks.

Fawad Razaqzada, analyst at Think Markets, agreed with Erlam that things haven’t been — and aren’t looking — great for the bullion crowd.

He said investors “wondered whether rising bond yields were a good thing (as they point to better economic conditions) or a bad thing (as they reduce the likelihood for further stimulus),” Razaqzada added.

The geopolitical risk component that has held up gold for decades has almost vanished too, with the yellow metal falling instead of rising from a recent flare-up in Middle East tensions.

Oil Price & Market Roundup

New York-traded West Texas Intermediate crude, the key indicator for U.S. crude, last traded at $59.04 on Friday. It officially settled the session at $59.26, down $1.27, or 2.1%. For the week, WTI dropped just 0.5%.

London-traded Brent, the global benchmark for crude, last traded at $62.72 on Friday. It officially settled the session at $62.91, down $1.02, or 1.6%. For the week, it gained 0.8%.

Energy Calendar Ahead

Monday, Feb 22

Private Cushing stockpile estimates

Tuesday, Feb 23

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Feb 24

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, Feb 24

EIA weekly report on natural gas storage

Friday, Feb 25

Baker Hughes weekly survey on U.S. oil rigs

Gold Price & Market Roundup

Benchmark gold futures for April delivery on New York’s Comex last traded at $1,783.35. It officially settled Friday’s trade at $1,777, up $2.40, or 0.1%, on the day. For the week though, April gold lost 2.5%.

The spot price of gold last traded at $1784.13, up $8.38 or 0.5%. For the week, it rose 0.4%, its first rise in six weeks.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. As an analyst for Investing.com he presents divergent views and market variables.

Comments are welcome and encouraged. Inappropriate comments will be reported and removed.

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