Trade Talks Support Crude, Dovish Powell Reverses Gold, Natural Gas Shorts Spooked by Weather

U.S. West Texas Intermediate and international-benchmark crude oil futures rallied on Friday, led by increased demand for higher-risk assets. Profit-takers and new short-sellers re-emerged on Friday in response to a bullish U.S. Non-Farm Payrolls report and dovish remarks from Fed Chair Jerome Powell. Natural gas prices posted a modest gain on Friday despite a government report that missed estimates to the downside.
James Hyerczyk
Commodities
Commodities

Commodity markets finished mixed on Friday with crude oil and gold moving in opposite directions in reaction to two major news events – the stronger-than-expected U.S. jobs report and the newly dovish Federal Reserve Chairman Jerome Powell. Natural gas futures posted a modest gain despite a government storage report that showed a smaller-than-expected withdrawal, and as updated forecasts showed the return of cold weather later in the month.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures rallied on Friday, led by increased demand for higher-risk assets. The catalysts behind the move were confirmation of trade talks between the United States and China, a robust U.S. jobs report and dovish remarks from Fed Chair Powell. All three events eased some fears of a global economic slowdown. Gains were capped by an unexpected rise in refined product inventories, according to a government report.

February WTI crude oil settled at $48.31, up $1.22 or +2.59% and March Brent crude oil finished at $57.45, up $1.50 or +2.61%.

In other news, U.S. energy firms reduced oil rigs for the first time in three weeks as producers began to shrink their 2019 drilling plans due to the collapse in crude oil prices during the last quarter of the year. According to General Electric’s Baker Hughes energy services firm, drillers cut eight oil rigs in the week to January 4.

Gold

Gold closed lower on Friday after reversing early gains that drove the market to its highest level since June 19. Fears of a global economic slowdown and recent heightened stock market volatility, as well as worries about Fed policy, have been driving gold prices higher since December 14.

February Comex gold settled at $1286.20, down $8.60 or -0.66%. Early in the session, prices rose as high as $1300.40.

Profit-takers and new short-sellers re-emerged on Friday in response to a bullish U.S. Non-Farm Payrolls report and dovish remarks from Fed Chair Jerome Powell. Both events sent U.S. Treasury yields and stock prices sharply higher, reducing demand for safe-haven gold. Gold prices fell despite a weaker U.S. Dollar, which came as a surprise to traders because it’s a dollar-denominated asset and tends to rally when the greenback weakens.

To recap the major events on Friday that controlled the direction of gold prices, the Labor Department’s December jobs report showed the economy added a robust 312,000 jobs. This was much higher than the consensus forecast of 176,000 jobs. Shortly thereafter, Federal Reserve Chairman Jerome Powell said the central bank will be more accommodative by exercising patience in raising rates, subduing fears of a hawkish Fed in 2019.

Natural Gas

Natural gas prices posted a modest gain on Friday despite a government report that missed estimates to the downside. Traders said the market was also underpinned by weather models showing colder weather moving into key demand areas during the latter half of January.

March natural gas futures settled at $2.880, up $0.068 or +2.42%.

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