Oil and gold rose sharply for different reasons on Friday – oil because of a Gulf of Mexico storm, a usual occurrence at this time of the year, gold because Federal Reserve chair Jerome Powell offered no timetable for tapering the central bank’sUS$120 billion in monthly bond purchases.
The latter was in fact the major influence on all markets at week’s end and saw equities end at record, gold perk up, along with silver, but the US dollar and bond yields weaken.
Oil’s rise had nothing to do with Powell but all to do with Hurricane Ida’s progress through the Gulf of Mexico.
Prices rose 2% on Friday, producing their biggest weekly gains in over a year, as energy firms shut production facilities in the Gulf ahead of Ida’s arrival near New Orleans-Baton Rouge on Sunday and Monday.
Companies led by BHP, BP, Chevron and Shell shut down fields and brought workers to the mainland for safety.
Brent futures rose $US1.63, or 2.3%, to settle at $US72.70 a barrel, while US West Texas Intermediate (WTI) crude rose $US1.32, or 2.0%, to settle at $US68.74.
That was the highest close for Brent since August 2 and for WTI since August 12, according to Rifinitiv data.
For the week, Brent jumped by more than 11% and WTI rose more than 10%, which was the biggest weekly percentage gains for both since June 2020.
“Energy traders are pushing crude prices higher in anticipation of disruptions in output in the Gulf of Mexico and on growing expectations OPEC+ might resist raising output given the recent Delta variant impact over crude demand,” Edward Moya, senior market analyst at OANDA, said.
Reuters said that by Saturday, oil producers had shut-in more than 90% of Gulf of Mexico crude production as the ninth-named storm of the season headed towards US fields.
It drove over Cuba on Friday night and Saturday and was heading into the Gulf and towards Louisiana.
Gulf of Mexico offshore wells account for 17% of US crude production, while over 45% of total American refining capacity lies along the Gulf Coast, especially around Baton Rouge (and to the southeast) which is in Ida’s path.
According to the National Hurricane Center, Ida will be a “significant hurricane” when it makes landfall near New Orleans late Sunday (early Monday morning, Sydney time), after passing through the producing areas of the gulf, which pumps around 1.6-million barrels a day.
“Historically speaking, crude oil rallies as hurricanes approach, despite the fact that refineries do not need crude oil when they are shut down during a storm,” said Bob Yawger, director of energy futures at Mizuho in New York told Reuters.
The attention on Ida’s advance meant attention was also not on yet another rise in US oil rig numbers in the weekly survey from baker Hughes.
Oil rigs rose five to 410 last week, the highest since April 2020. In August, drillers added 25 oil rigs, the most in a month since January, putting the oil rig count up for 12 months in a row for the first time since July 2017. Total rig numbers reached 508 including an unchanged 97 drilling for gas.
Oil prices were also supported by a decline in the greenback to a one-week low versus a basket of other currencies following comments by U.S. Federal Reserve Chair Jerome Powell. [USD/]
Meanwhile once Ida passes, attention will turn to the Wednesday meeting of OPEC and its allies, including Russia, a group known as OPEC+, to discuss its plan from July to raise output by 400,000 barrels per day every month for the next several months
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Meanwhile Comex gold for December delivery settled up $US24.30 to $US1,819.50 an ounce, the highest since the start of this month and up 2% for the week and the largest weekly gain since late May.
Comex silver closed up 4.1% for the week at $US24.060 on Friday.
And Comex copper rebounded on Friday, not so much because of Powell’s speech but because of continuing demand that pushed the price up more than 18 US cents a pound over the week to $US4.3165 a pound at settlement on Friday.
That was a gain of 1.6% for Friday and 4.4% for the week which was the largest weekly rise since May when the price was trading near record levels above $US10,000 a tonne.
In his speech to the Fed conference, which is being held virtually this year rather than at the Jackson Hole resort, Powell offered no firm timetable for an end to quantitative easing measures or for higher interest rates.
But he did make it clear the Fed was moving towards the start of a slowing in spending – but not an interest rate rise.
That saw bond prices push higher, yields dip and the US dollar fall.
The US dollar index to 92.68 points. Bond yields also weakened with the 10-year treasury yield dipping to 1.314% after rising to a day’s peak of 1.36%.
But it was enough for the Financial Times to claim that “Powell eyes year-end tapering move” but for also others to sort of agree, but add that there were a lot of things that had to fall into place before then.
“Fed Chair Powell’s dovish Jackson Hole remarks have ignited solid gains in bonds and stocks into the weekend as the remarks alleviated worries that an announcement of QE tapering would be forthcoming today, and then begun in September.
“Powell did say it could be appropriate to begin reducing the pace of asset purchases this year however. He was also sanguine that the pick-up in inflation is transitory, pushing back against the most hawkish elements on the FOMC,” US group, Action Economic said in a note.
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The turnaround in iron ore prices continued on Friday as steel mills demand for 62% Fe fines from Australia continued. The price of 62% Fe fines from the Pilbara rose $US4.63 to $US157.55 a tonne. That was up $US17 or more than 12% over the week.
The price of 58% Fe fines was up $US3.62 on Friday to $US126.50 a tonne.
Over the week it added nearly $US18 a tonne or 16%. 65% Fe fines from Brazil closed at $US176.10 a tonne, up $US5.50 on the day and just over $US17 a tonne or nearly 11%.
The premium held by 65% Fe fines over 62% Fe fines from the Pilbara ended the week at just over $US18 a tonne, about the same as the previous Friday and down from more than $US 30 a tonne at the start of the month.
