Weekly Commodity Rundown: Gold Rockets, Crude Soars, Natural Gas Dives

U.S. West Texas Intermediate and international-benchmark Brent crude oil soared last week as a number of bullish factors combined to drive prices to levels not seen in nearly a month. Gold prices rose to a multi-year high after the U.S. Federal Reserve signaled the possibility of a rate cut later this year. Natural gas futures fell last week to multi-year lows, led by a plunge in spot gas prices, a spotty weather forecast and a greater-than-expected weekly storage build.
James Hyerczyk
Weak Dollar, Strong Gold

Blame it on global warming. With the start of summer in the U.S., crude oil and gold were hot, but the weather was not, leading to a steep plunge in natural gas prices. Of course, the crude oil was helped by escalating tensions in the Middle East and gold was aided by a suddenly dovish Federal Reserve. Not even the hot air blowing from its monetary policy meeting could raise temperatures enough in the U.S. to drive up demand for natural gas.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil soared last week as a number of bullish factors combined to drive prices to levels not seen in nearly a month. The rally was strong enough to change the trend to up on both the WTI and Brent daily charts, while bringing the 200-day moving average back into the picture.

Last week, August WTI crude oil settled at $57.43, up $4.66 or +8.83% and August Brent crude oil finished at $65.20, up $3.19 or +4.89%.

The buying started early in the week on the hope that a meeting between U.S. President Trump and China President Xi Jinping would lead to an eventual trade deal between the two economic powerhouses. It continued early Wednesday following the release of a better-than-expected government inventories report.

A weaker U.S. Dollar also helped boost foreign demand for dollar-denominated crude oil. The greenback weakened when the Federal Reserve hinted at an interest rate cut. Buyers also reacted to reports that OPEC and its allies would extend the deal to cut production, trim the excess supply and stabilize prices.

The biggest story of the week is the escalation of tensions in the Middle East after a U.S. official said one of the country’s military drones was shot down by an Iranian missile. Additionally, the New York Times reported late Thursday that President Donald Trump approved military strikes on several Iranian targets, but surprisingly pulled back the order to launch the attacks.

Gold

Gold prices rose to a multi-year high after the U.S. Federal Reserve signaled the possibility of a rate cut later this year. The response in the financial markets was even stronger with the benchmark 10-year U.S. Treasury yield dropping below 2-percent as investors priced in a 100% chance of a rate cut in late July. This drove down the U.S. Dollar while increasing demand for dollar-denominated gold.

For the week, August Comex gold settled at $1400.10, up $55.60 or +4.14%.

The Fed did not cut rates at the June meeting and did not specify exactly when it would, but its “dot plots” indicated that nearly half of its policymakers now predict rates will fall by the end of the year. The Fed also removed the word “patient” from its monetary policy statement. Furthermore, Fed Chair Jerome Powell said, “The case for somewhat more accommodative policy has strengthened.”

Natural Gas

Natural gas futures fell last week to multi-year lows, led by a plunge in spot gas prices, a spotty weather forecast and a greater-than-expected weekly storage build. Prices hit a four-year low last week. According to Mobius Risk Group, on a national level, the first 20 days of June have been 1.5% cooler than three-year norms and 20.5% cooler than the same 20 days last year.

Last week, August natural gas settled at $2.169, down $0.212 or -8.90%.

Mobius Risk Group went on to say that six out of the eight prior years have ranked in the top 10 warmest Junes over the past 69 years, while June is on track to rank a lowly 34th warmest. “Weather is, and will remain, the most dominant force affecting near-term prices,” the Houston-based firm said.

Finally, the U.S. Energy Information Administration (EIA) reported a 115 Bcf injection. This was above the consensus estimate of 105 Bcf. Inventories as of June 14 are now at 2,203 Bcf, 209 Bcf above last year and 100 Bcf below the five-year average.

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