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Gas Outruns Oil As Market’s Leading Commodity

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Gas Outruns Oil As Market's Leading Commodity

Markets Pour Cold Water On Oils Price Rally While Gas Increase Predictions Prove More Than Hot Air

Oil finished lower than hoped for after recently selling for its highest price for twelve months, mainly due to global production disruptions and diminishing US crude inventories.

Natural Gas, on the other hand, has seen its highest price point since September.

Oil prices fall across the board

July West Texas Intermediate Crude lost 67 cents, representing a fall of 1.3%, on the New York Mercantile Exchange.

Prices settled on Wednesday at $51.23 a barrel, with a recent reading even lower at $50.56.

August Brent Crude saw a similar incline, with a percentage loss of 1.3%, or 56 cents in monetary terms, to $51.95 a barrel.

This was after a Wednesday finish of $52.51 a barrel on the London ICE Futures Exchange.

That figure has been its highest since October.

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Analysis: detail or disaster?

Analysts have had much to say on the matter.

Some see it as a small blip, while others see the price changes as symptomatic of wider trends which could continue in the long term.

An Energy Analyst at Citi Futures and OTC Clearing, Tim Evans, explains that this decrease is simply a modest technical rectification and that these decreases should not be cause for concern as they do not represent a long-term drop in the price of oil, such as has been seen in the last few years.

On the other hand, we have Barnabas Gan, an economist at OCBC Bank.

He believes that rising profitability, compared with the last 18 months, might be encouraging production.

The oil slump in the last few months, after a high in September, is symptomatic of increasing global supplies, according to him.

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EIA puts its federal finger on the issue

The Energy Information Administration, the principal knowledge body of the energy market for the federal government, published a report on Wednesday shedding light on the United States supply chain data.

This confirmed what many predicted, that US stockpiles had fallen dramatically.

In fact, they fell by 3.2 million barrels.

However, the output, which is the amount being produced and sold on the market, increased by 10,000 barrels.

Small in comparison to the stockpile decrease, it is significant because it means the rebounding market encouraged producers to pump more oil.

Supply disruption, price trend interruption

Another report by the EIA examined the effect of global oil supply disruptions on the price up until now.

By disruptions, they include things like power outages, civil war, and inclement weather, particularly in developing economies with weaker infrastructures, less stable politics, and more extreme climates.

Disruptions averaged 3.6 million barrels a day in May 2016, reducing global supplies which helped contribute to the continued price growth oil saw in that month, up until now.

This was the highest rate of disruptions since the EIA began tracking them in July 2011.

Instability in the Middle East and Africa no doubt had a significant role to play.

Gas price up 6%

Natural gas, on the other hand, saw its highest price since September last year, as supply increases were lower than predicted.

It jumped 14.9 cents, representing an increase of 6%, finishing at $2.617 per million British Thermal Units.

Prior to this announcement, the price of natural gas had been $2.46 per million BTU.

Richard Hastings (Seaport Global Securities), a macro strategist, explains that gas is still affordable enough to drive demand and consumption.

While increases in supply have been lower than historical precedents, this is mostly because of the historical switch from coal to gas which is largely behind us.

Domestic supply stagnating in the face of huge demand

The EIA reports that US gas supplies rose by 65 million cubic feet for the week ending June the 3rd, but this was below the average rise of 80 billion that had been expected by many, including S&P Global Platts analysts.

They predict further price increases in the years and decades ahead:

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Paul Flynn, who works for Future Prices Group as a senior market analyst, reiterates this, explaining that demand is increasing while US production of natural gas is falling.

Nonetheless, total stocks in the US currently stand at 2.972 trillion cubic feet, up 660 billion from a year ago and 722 billion above an average of the last five years.

Robbie Frasier (commodity analyst, Schneider Electric) explains the increase in price in terms of a troika of factors: increased demand from Mexico for USA gas, war summers boosting demand for power generation (for air conditioning mainly) and US production levels failing to keep up with these increases.

US natural gas price has also stayed remarkably competitive in the global market, compared to other countries’ gas prices.

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Paul Flynn, who works for Future Prices Group as a senior market analyst, reiterates this, explaining that demand is increasing while US production of natural gas is falling.

Nonetheless, total stocks in the US currently stand at 2.972 trillion cubic feet, up 660 billion from a year ago and 722 billion above an average of the last five years.

Robbie Frasier (commodity analyst, Schneider Electric) explains the increase in price in terms of a troika of factors: increased demand from Mexico for USA gas, war summers boosting demand for power generation (for air conditioning mainly) and US production levels failing to keep up with these increases.

US natural gas price has also stayed remarkably competitive in the global market, compared to other countries’ gas prices:

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Energy on the whole

In other energy news, Gasoline finished half a cent lower, a change of 1.05%, to $1.619 a gallon; while Heating Oil fell 1.9 cents, falling 1.2% to $1.551 a gallon.

The philosophy surrounding global energy markets and pricing is rapidly changing from the three assumptions of the 90s: that prices had to stay high to cover costs, a growing middle class in the developing world would fuel growing demand for oil, and that reserves will one day deplete.

Technology, both in term of alternatives to fuel and alternative ways of extracting it (other than pulling it out of the ground) have flipped this thinking on its head, and for the foreseeable future energy markets will be unpredictable.

 

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Gold Becoming ‘Unavailable’ Due to Overwhelming Demand

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Gold Becoming ‘Unavailable’ Due to Overwhelming Demand

If you can find gold coins or gold bars available for purchase, it might be a good idea to get your hands on them.

Major gold dealers are reporting that gold bars and coins are virtually unavailable right now as investors flood into the precious metal as a safe haven.

Yesterday, Kitco announced that it is almost completely sold out of the most common one-ounce gold coins. American Eagles and Buffaloes from the U.S. Mint are out of stock. The same goes for Canadian “Maple Leaf” coins, Great Britain’s “Britannias,” Australia’s “Kangaroos” and South African Krugerrands.

Josh Strauss, a partner at Pekin Hardy Strauss in Chicago says “There’s no gold. There’s roughly a 10% premium to purchase physical gold for delivery. Usually it’s like 2%. I can buy a one ounce American Eagle for $1,800… $1,800!”

The U.S. Mint does have American Eagles for sale, but they are listed at $2,175 for a one ounce coin, a massive 33% premium over yesterday’s spot price of $1,630 per ounce.

Ludwig Karl, a board member of Swiss Gold Safe Ltd., said “It’s absolutely crazy what’s going on. Right now, if somebody wants to buy gold, I wish them all the best in finding it. Most of the bullion dealers are closed.”

Debra Thomson, sales director at IBV International Vaults, added “The last time I saw this amount of chaos in the market was with 9/11.” IBV offers safe-deposit boxes and the purchase of precious metals worldwide.

And Seamus Fahy, co-founder of Merrion Vaults, says “A buyer would have been fussy about the coins they want two months ago. Now they will buy anything they can get their hands on. They are desperate to get physical gold.”

If Goldman Sachs strategist Jeffrey Currie is right, gold coins will continue to be scarce as demand skyrockets over the coming months with every newly-announced government stimulus plan.

During this month’s massive selloff, gold initially dropped as well. It did the same thing at the beginning of the 2008 financial crisis, dropping around 20%. But in November 2008 when the government announced the first of many quantitative easing plans, gold stabilized and climbed higher.

Currie believes that with the announcement last week that the Federal Reserve would start buying $700 billion worth of Treasurys and mortgage-backed securities, once again we are mirroring what happened in 2008, and that means gold’s massive rally is likely underway.

Not only could the Fed’s quantitative easing measures send gold prices soaring, the supply imbalance will likely get worse, adding more fuel to the fire.

Switzerland’s refining industry, which is a major international hub and has three of the world’s largest refiners, is shut down in an effort to slow the advance of the coronavirus and mines across the globe are seeing production slow or come to a complete halt as governments close anything deemed non-vital in the wake of the outbreak.

“There’s no gold” is likely to become a common refrain in the coming months.

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Gold Climbs Again As Fed Turns On “Unlimited” Printing Press

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Gold Climbs Again As Fed Turns On “Unlimited” Printing Press

Gold just had its single largest one-day gain going back to at least 1984, climbing $31.10 an ounce to close at $1582.30, all thanks to the Federal Reserve cranking up the printing press for the latest round of quantitative easing (QE).

Yesterday, the Fed announced that it would start buying mortgage-backed securities and Treasurys in an unlimited amount in an attempt to add liquidity to the financial markets.

What makes this round of QE unique is that the Fed hasn’t put a monetary limit on how much it is willing to spend to keep the markets afloat.

With an ‘unlimited’ amount of money being printed, it shouldn’t come as a surprise that investors have flocked to gold recently as a store of value during these turbulent times.

“The endless QE to trillions in global liquidity programs are all in gold’s favor among the general turmoil,” Peter Spina, president and chief executive officer at GoldSeek.com told MarketWatch. “Gold is returning back to its function as a global currency.”

Spina also said he wouldn’t be surprised to see gold climb to $1,700 an ounce by “Friday of this week or next,” and that prices could climb to $2,000/ounce and higher in the second quarter.

Yesterday Goldman Sachs said in a note that gold bullion is “probably at an inflection point and it is a time to buy” due to the concerns over the dollar being debased with all the money being printed.

“Accordingly, we are likely at an inflection point where ‘fear’-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008” the note added.

An interesting twist to the increased demand for gold right now is the very real possibility of a shortage in the near future, which could absolutely cause prices to scream higher.

The coronavirus is taxing supply chains, and could make it very difficult to get new gold supply to the market.

Spina from GoldSeek.com added “So with a true gold rush underway, there is a perfect storm brewing for the gold and gold miners.”

Three of the largest gold refineries (Valcambi, Argor-Heraeus and PAMP) announced yesterday that they will be closing down their production facilities in Switzerland for at least a week as part of an effort to control the spread of the coronavirus.

The three produce nearly one-third of the annual global supply of gold.

GoldCore, a bullion provider based in Dublin, said Monday that it has “experienced record demand in recent days and the global supply of gold and silver bullion coins and gold bars has quickly evaporated.”

“Most of the largest gold refineries and mints in the world have closed their refining and minting operations for the next two weeks, and this suspension in production may become longer which …will badly impact supply,” GoldCore said.

Mark Mobius, a veteran investor told Bloomberg TV in an interview “(Gold’s) recent sell-off alongside risk assets such as stocks and oil was a sign of pure panic, with investors selling everything as the pandemic spread.”

“I think it’s a mistake,” he added. “People should have gold and this may be a good time to increase holdings in gold — in fact I’m thinking that myself.”

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Dow Plummets Despite Rate Cut

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Dow Plummets Despite Rate Cut

Stocks fell in volatile trading on Tuesday after the Federal Reserve slashed interest rates by half a percentage point in an emergency effort to stem slower economic growth from the coronavirus outbreak.

The Dow Jones Industrials stumbled 352.4 points, or 1.3% to break for noon at 26,350.92. The 30-stock average gyrated between sharp gains and solid losses after the decision was announced.

The broader S&P 500 dropped 37.03 points, or 1.2%, to 3,053.20.

The tech-heavy NASDAQ let go of 98.41 points, to 8,853.75.

Bank shares fell broadly, led by a 3% drop in Bank of America shares. JPMorgan Chase skidded 2.5% and Citigroup slid 0.4%.

The decision came two weeks before the Fed’s scheduled meeting as the central bank felt it was necessary to act quickly to combat the effect of the virus spreading worldwide. It’s the first such emergency action coming in between scheduled meetings since the financial crisis.

Investors have been fretting over a potential economic slowdown as the coronavirus spreads around the world. More than 89,000 coronavirus cases have been confirmed globally along with more than 3,000 deaths related to the virus.

Prices for the 10-Year U.S. Treasury gained sharply, dropping yields to 1.03% from Monday’s 1.15%. Treasury prices and yields move in opposite directions.

Oil prices gained 63 cents to $47.38 U.S. a barrel.

Gold prices $43.00 to $1,637.80 U.S. an ounce.

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