Financial Markets’ Weekly Recap, August 22-26

Crude oil was the winner of the week on signs of improving fuel demand, so oil surpassed the performance of all other assets, although some market expectations actually occurred during the past week and some other expectations did not.

Energy Prices

After starting the week near the previous week’s lows, oil attempted to rally only to hesitate on the possibility of another US interest rate hike in addition to a bullish inventory report, as well as the threat of output cut by OPEC+, so crude could not push prices through new levels of resistance.

Additionally, the “on-off” Iran nuclear talks made slight progress this week causing the specter of additional crude supply to hang over the market. WTI slumped to a low of $86.60 Monday while Brent touched on $92.35 as global stock markets traded lower. Concerns over falling prices led the Saudi Oil Minister to suggest the OPEC+ group may cut production to provide support. On Friday, WTI crude oil closed higher after Powell warned tight monetary policies and higher interest rates are likely over the long term, despite their cost to jobs and economic growth.

WTI crude for October delivery closed up 54 US cents to settle at $US93.06 a barrel, after trading as low as $US91.08 following Powell’s speech. WTI was up more than 3% for the week.

OPEC+ collectively is already about 2.8 million barrels per day below its monthly targets. The ensuing rally, aided by a bullish EIA Weekly Petroleum Status Report, fell short of cresting the $96.60 resistance level for October futures contract resulting in a test of lower levels.

This week’s EIA Weekly Petroleum Status Report indicated that inventories of commercial crude fell 3.3 million barrels to 422 million and decreased to six percent below normal for this time of year. The API reported that inventories fell by 5.6 million barrels while the WSJ survey predicted a drop of only 500,000 barrels. Refinery utilization rose 0.3 percent to 93.8 percent, from 93.5 percent the prior week.

Russia’s oil production has shown some resilience, increasing about 200,000 barrels from June to 9.6 million barrels per day. However, the impending EU embargoes coupled with domestic economic woes could lower output in the coming months. Declining gasoline demand post-Labour Day Weekend may allow the production of more diesel which could lower spreads and prices.

Natural gas prices continue to amaze but seem to be supported by strong fundamentals as they hit 14-year highs once more. Consistently high demand in the UK and EU has resulted in record-high prices again while in the US, July gas-fired generation set a new record. Breaking the $10 per MMBtu barrier at one point, prices fell back on a bearish inventory report. The EIA Weekly Natural Gas Storage Report showed an injection of 60 Bcf last week vs 46 Bcf average and forecasts calling for 56 Bcf.

Total stored gas now stands at 2.58 Tcf, around -9.5 percent vs year-ago levels and -12 percent from the five-year average. US LNG exporters continue to sign long-term contracts with overseas entities while four new LNG export terminals are under construction. The damaged Freeport LNG facility has pushed-back its partial restart to November with full operation scheduled for March. Norway has taken over the No. 1 spot for gas exports to the EU replacing Russia. The Scandinavian country has pledged to keep output as high as possible.

Equities

All three major US stock indexes were hesitant all week long but appear to be rebounding on the possibility that the US Fed will continue to try and curb inflation. The US Dollar Index has been up-and-down all week but looks to settle above last week. The US stock market, in particular, have gone through a week that was so dull. Friday, with Jackson Hole in the background, gave a painful day for most equity investors.

European shares slipped on Friday as investors fretted over downbeat German consumer sentiment data due to rising energy costs and the path for U.S. interest rate hikes ahead of Federal Reserve Chair Jerome Powell’s speech at Jackson Hole. At (GMT 12:20 ),UK’s benchmark FTSE 100 was last trading up at 0.31percent, Germany’s Dax was up by 0.45 percent, France’s CAC finished was up by 0.23 percent.

Gold Price

It is useful to take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices and other key correlated assets, and may continue to into the future.

The gold market has enjoyed more velocity and momentum since Sunday evening. Most impressively for the yellow metal, the motion hasn’t been entirely downward but is set to close the well into the green territory, despite the US Dollar returning to eye-watering heights over the same period.

Gold prices fell on Friday as the dollar held near recent peaks and Treasury yields firmed with investors positioning for Federal Reserve Chair Jerome Powell’s speech at Jackson Hole for indications on further rate rises.

US Treasury yields had moved steadily higher from the global market re-open on Sunday evening, and the gold market gave back the last of some hard-won ground over the same stretch. From Friday’s closing prices near $1750/oz, gold spot fell to around $1730 just ahead of the Monday market open.

On Thursday in the US, gold was unable to hold on to these gains after a better-than-expected update to Q2 GDP number for the US economy kicked off a risk-on rally that saw investors shifting away from most safe havens (like gold) in favor of new bets in the stock market.

With Friday’s speech by Fed Chair Jerome Powell still looming though, it was another mostly mutable rally, lacking the exuberance of earlier in the summer. While the increase in risk appetite saw gold knocked from its highest perch of the week, prices didn’t fall far and through Thursday’s session trading until early Friday morning spot prices remain tight to $1755/oz.