Crude Oil, Natural Gas Shine, Gold’s Luster Tarnished

Crude oil was supported primarily by worries over a possible supply disruption amid physical attacks on Saudi Arabian assets and US-Iran tensions. Natural gas rose as late spring/early summer heat became a new concern. Gold traders were burned by chasing headlines as the dollar regained strength on improving U.S. economic conditions.
James Hyerczyk
Crude Oil, Natural Gas, Gold

The energy complex shined last week with crude oil and natural gas posting solid gains. Gold, however, lost its luster as it continued to be pressured by low demand.

Crude oil was supported primarily by worries over a possible supply disruption amid physical attacks on Saudi Arabian assets and US-Iran tensions. Natural gas rose as late spring/early summer heat became a new concern. Gold traders were burned by chasing headlines as the dollar regained strength on improving U.S. economic conditions.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures remained underpinned by the OPEC-led production cuts and the U.S. sanctions against Venezuela and Iran. The rally, however, was fueled by concerns over potential supply disruptions. Gains remained capped by rising U.S. stockpiles and worries over lower demand due to escalating US-China trade relations.

The cornerstone supporting the market is the tight global supply caused by the production cuts from OPEC and its allies. It won’t become an issue until late June when the participants in the program meet to discuss whether to continue reducing supply.

The variables driving the volatility are the heightened tensions in the Middle East and the renewed worries over a possible global economic slowdown due to the escalating trade dispute between the U.S. and China.

Last week, July WTI crude oil settled at $62.92, up $1.12 or +1.81% and August Brent crude oil settled at $71.26, up $1.62 or +2.27%.

Natural Gas

Natural gas futures managed to eke out a small gain last week after hitting its highest level since April 16. It wasn’t much of a gain, but the chart pattern showed buyers were willing to come in on the dips, while showing some reluctance about buying strength.

The chart pattern suggests general uncertainty with speculative buyers trying to price in the prospect of early summer demand growth, and the bearish traders responding to pressure from recent bearish storage builds. As Bespoke Weather Services put it, “Prices were up and down during the week, with the market stuck between bullish weather trends and bearish fundamentals.”

For the week, July natural gas settled at $2.664, up $0.009 or +0.34%.

Comex Gold

Gold futures plunged to a two-week low last week just three sessions after touching a 1-month high with most of the price action controlled by a stronger U.S. Dollar. The dollar rose last week as a series of better-than-expected U.S. economic reports reduced the chances of a recession and the odds of a Fed rate cut later in the year.

Gold bulls were trapped at the highs after headline buyers tried to build a case for increasing geopolitical risk. Even a weekly decline in U.S. Treasury yields and slightly lower demand for risky assets failed to draw the attention of major gold buyers. Last week’s price action also suggests that gold has lost its luster as a safe-haven asset and is now an investment. This means it’s not likely to mount a strong rally as long as there are other assets that return a better yield.

Last week, June Comex gold futures settled at $1275.70, down $11.70 or -0.91%.

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