Increased Risk Appetite Strengthens Crude, Weakens Gold; Natural Gas Bulls Betting on Cold Blast

Risk appetite and weather were two factors influencing commodity prices on Friday. The price action in crude oil and gold was primarily driven by investor appetite for risk in reaction to a potential positive development in U.S.-China trade relations. Uncertainty over near-term weather forecasts encouraged some speculators to pare positions

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil hit their highest levels since December 7 on Friday, led by another day of stock market gains, and a report that China has offered a plan to erase its trade surplus with the United States.

On Friday, March WTI crude oil settled at $54.04, up $1.68 or +3.21% and March Brent crude oil finished at $62.70, up $1.52 or +2.42%. For the week, WTI gained 4.10% and Brent was up 3.54%. Both markets also posted a third consecutive week of gains following their moves into bear market territory during the last quarter of 2018.

Prices were initially supported on Friday by a Wall Street Journal report that said Washington is considering removing tariffs on Chinese goods. However, the U.S. Treasury Department and United States Trade Representatives denied the story.

The markets recovered to hit new highs for the session after Bloomberg and CNBC reported that China had presented a plan earlier in the month that would see China increase purchases of U.S. goods over the next six years with the goal of reducing its trade surplus to zero by 2024.

Any positive talk that leads to a potential end of the U.S.-China trade dispute tends to be bullish for crude oil because it could lead to a global economic turnaround and increased demand.

Gold

The news about China drove up demand for risky assets with stocks hitting their highest levels in more than month. This encouraged investors to shed their long positions in safe-haven gold. The news also drove up U.S. Treasury yields because such a deal would be bullish for the economy, meaning the Fed would have to raise rates in the future. Rising Treasury yields also made the U.S. Dollar a more attractive asset, which reduced foreign demand for dollar-denominated gold.

On Friday, February Comex gold settled at $1282.60, down $9.70 or -0.75%. For the week, the market was down $6.90 or -0.54%.

Natural Gas

Natural gas futures bounced back from early session weakness to close higher for the session on Friday. After a gap-higher opening to start the week, natural gas rose to its highest level since December 24 before pulling back into a support zone.

On Friday, March Natural Gas settled at $3.239, up $0.065 or +2.05%. For the week, the market was up $0.294 or +9.98%.

The overall price action last week suggests investor indecision, but that can be expected during a weather market. Traders may have priced-in most of the near-term cold. However, if the bitter cold shows up this week-end and the forecasts on Monday show much colder-than-normal temperatures over the next two weeks then natural gas is likely to erase last week’s decline from $3.406.