US oil inventory shortfall pushes crude prices up above $60 a barrel

December 24, 2019
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Oil Prices at Three-Month High Due to Declining US Inventories

OPEC’s strategy to push prices up is working...as a sustained rally that started on December 4 has seen oil prices gain 8.2%, which reached $66.08. Thin trading volume has contributed to the rally, with many traders heading home for the holidays. And a lack of other major expected news in the oil markets is projected to keep oil prices rising slowly at least until the end of the year.

So are the OPEC production cuts the only reason for the rally? Far from it. Unlike the 70s, when a word from the Saudis could see the entire world economy paralyzed, nowadays, the United States of America is the largest oil producer in the world. And as a result, oil prices have gone up thanks to lower US inventories for crude.

So this rally is going to stretch into 2020? It’s possible, considering that the chances of major market movements this close to the New Year are historically low. But OPEC’s predictions indicate that the market is going to be relatively balanced next year, meaning that prices will mostly stay above $60 a barrel for at least a few months.

So we’re looking at stagnating prices instead? That’s the assumption, given growing Chinese and Indian demand – especially with an optimistic market sentiment about the possibility of a second phase for a US-China trade deal. Of course, that suits OPEC and non-OPEC petro-economies like Russia, who are committed to maintaining production cuts

Wut We Think: Oil prices are probably not going to move in any major direction for the last two weeks of the year. The most likely scenario is the slow continuation of the current rally, with prices appreciating no more than a few centers, with a slight correction after the new year that will take prices to around $60. And, short of a major disruption of supply or a sudden boom in US oil production, they’ll probably stay there. 

 

Political Uncertainty in the United States Pushes Gold Up

Gold is the original safe-haven asset...and it’s proving its status with marginal gains following the impeachment of US President Donald Trump. Gold gained 0.1% following a vote on impeachment held yesterday in the US House of Representatives, but those gains have fallen back at press time, with gold trading roughly at the same price as it was this time last week, at $1,474, off from about $10 of the $1,485 weekly peak.

So it didn’t move at all? Gold isn’t known for its volatility, though it's still up 15% since the start of the year. Even a 0.1% gain is notable and presages further growth – especially if market sentiment sours on the possibility of a Phase Two US-China trade deal.

What about the next year? There are reasons to believe both the bear and bull cases for gold in 2020, and it all depends on geopolitics and trade. The bears will probably have it if the US-China trade war simmers down and heads towards a resolution – while the bull case wins out if political instability in developed countries continues, and if US-China trade relations break down further.

And the rest of this year? Uncertainty, along with the fact that traders are going on holiday this close to New Years and Christmas, will probably keep gold within a few dollars of the current price. But there is a strong bullish trend starting in January – the Chinese Lunar New Year, set for January 25, has historically given gold prices a pretty respectable boost.

Wut We Think: Don’t expect any sudden moves until late January, when a buying frenzy for physical gold is expected to boost prices on the Chinese Lunar New Year. Further out, traders will be closely watching trade developments and hedging one way or the other depending on how the US-China trade saga plays out. 

 

Trading Spotlight: Hedging

Risk is present in every single transaction and contract on the financial markets, and as the adage goes – the bigger the risk, the bigger the profit. But while that may be true for both trading and gambling, what separates a successful trader from a speculative gambler is that the trader knows how to manage risk properly – often by hedging their portfolio.

Hedging: Hedging refers to a risk management technique that accepts lowered potential profits to offset potential losses. It often involves using options and derivatives to ensure that a loss will result in a simultaneous gain, bringing net profit to zero. Hedging can also be used to protect an investor against fluctuations in the price of a commodity or other volatile assets.

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