Commodities: The worst week this year; Chinese traders in focus on their return

Safe-haven buying pushed the dollar to levels above 96 after the U.S. president told reporters he would not meet Chinese President Xi before 1st March, reducing the likelihood of ending the trade war.

By Ravindra Rao – Head of Commodity Research & Advisory, Anand Rathi Commodities


In the week gone by, commodities fell sharply due to the rising dollar. The yellow metal, although range-bound, skidded as traders bought the US dollar to safeguard their investments. Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell for a fifth straight session. The greenback rose sharply in the week gone by for a couple of reasons.

The US reported a sharp rise in non-farm payrolls on February 8, and a narrowed trade deficit this week. Moreover, the European Commission slashed its growth forecasts for the euro area’s big economies and warned that Brexit and the slowdown in China could worsen the outlook for crude oil.

Safe-haven buying pushed the dollar to levels above 96, after the US president told reporters he would not meet Chinese President Xi before 1st March, reducing the likelihood of ending the trade war.

Crude oil prices dipped after US inventories rose and as production levels in the country held at record levels, but OPEC-led supply cuts and the crisis in Venezuela supported markets.

Countering the rising US crude output and inventories are voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market and propping up prices. Meanwhile, US sanctions against Venezuela’s oil industry are expected to knock out at least 500,000 barrels a day of crude exports.

Next week, Chinese markets will resume trading after celebrating the Lunar New year. Industrial metals may be weak due to the appreciating dollar. WTI Crude oil is poised to challenge the $50 psychological support on the lower side as US inventories have hit an all-time high once again.

Moreover, the Trump administration is confident that key ally Saudi Arabia will fill any oil-supply gap caused by US sanctions on Venezuela, with refineries along the Gulf Coast told not to expect any crude release from the Strategic Petroleum Reserve.

But Saudi officials have indicated no such plans, with OPEC in the midst of a production-cut accord aimed at boosting oil prices. The kingdom slashed its output to 10.21 million bpd in January, down almost 400,000 bpd from December’s levels.

Saudi Energy Minister Khalid al-Falih has said February?s output would fall even lower. Lastly, the yellow metal may experience profit-booking due to the rising dollar? nevertheless, $1,300 is a strong short-term support.

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Author: The Future Markets

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