Demand Worries Pressure Crude Oil, Natural Gas while Strong Dollar Caps Gold

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures both closed lower last week, but the U.S. market absorbed a bigger loss. The weakness in gold prices was fueled by two factors last week. Natural gas prices were pressured all week by the return of warmer temperatures, which reduced heating demand.
James Hyerczyk
Crude Oil, Gold, Natural Gas

The strong U.S. Dollar weighed on dollar-denominated commodity markets last week with crude oil and gold feeling the brunt of the selling pressure. Natural gas futures tumbled as investors gave up hope for a late winter surge in prices. Crude oil was directly influenced by renewed worries over U.S.-China trade relations. Gold was pressured by lower foreign demand. Natural gas fell on forecasts for lower demand.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures both closed lower last week, but the U.S. market absorbed a bigger loss.

For the week, March WTI crude oil settled at $52.72, down $2.54 or -4.60% and April Brent crude oil closed at $62.10, down $0.65 or -1.05%.

While the OPEC-led production cuts continued to underpin prices because of their ability to trim the excess global supply, the shift in trader focus to demand issues clearly outweighed their influence.

Crude oil prices rose at the start of trading last week, hitting their highest marks since November 21. Supporting prices early in the week were U.S. sanctions on Venezuela which helped keep investor focus on tighter global supplies. Prices were also supported by the news that oil supply from OPEC fell in January by the largest amount in two years, according to a Reuters survey.

Prices began to tumble and remained weaker throughout the week after the European Commission lowered its outlook for the Euro Zone economy and on renewed worries over a U.S.-China trade deal.

Late in the week, Brent crude oil received a boost on reports that the U.S. would not extend the exemptions to the countries allowed to buy Iranian crude oil.

Comex Gold

The weakness in gold prices was fueled by two factors last week. Early in the week, gold was pressured by spillover selling in response to the previous Friday’s robust U.S. Non-Farm Payrolls report and ISM Manufacturing PMI data. These reports raised issues about the Fed’s assessment of the economy. Treasury yields rose on the news as traders priced in the possibility of at least one rate hike in 2019. This made the U.S. Dollar stronger, while driving down demand for dollar-denominated gold.

For the week, April Comex gold settled at $1318.50, down $3.60 or -0.27%.

Gold was further pressured as the dollar rose further on safe-haven buying tied to the problems with U.S.-China trade negotiations. Safe-haven buyers returned to gold late in the week, helping to put in the low for the week as investors reduced demand for risky assets.

Natural Gas

Natural gas prices were pressured all week by the return of warmer temperatures, which reduced heating demand. The selling was extended late in the week following the release of a bearish government storage report. Traders also responded to a change in the weather forecasts which now say the return of a weather system in mid-February will not bring the extremely cold temperatures previously expected.

For the week, March natural gas settled at $2.583, down $0.151 or -5.52%.

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