• OPEC cuts production- NYMEX futures move towards $60 while natural gas remains under pressure
  • Gold and silver fall with silver underperforming the yellow metal, while PGMs remain strong
  • Soybeans a touch higher, but losses in corn and wheat as the market awaits the December 10 WASDE report from the USDA
  • Coffee and sugar rally
  • Friday’s employment report sends stocks higher- Digital currencies remain under pressure

The story of this week:

 

OPEC Supports Crude Oil At The Cartel’s Meeting

 

The oil cartel held its biannual meeting on December 5 and 6 in Vienna, Austria. The production policy decision came on Friday, December 6, after consultations between the OPEC oil ministers and the Russians. Since 2016, Russia has become the most influential non-member of the cartel. Therefore, the policy statement has typically come out after the second day of the biannual summit.

Going into the winter gathering, OPEC had been working with a 1.2 million barrel per day output cut.

On Friday, the cartel announced a rise in the production cut to 1.7 million barrels per day. In addition to the further reduction of 500,000 barrels, Saudi Arabia’s Energy Minister Prince Abdulaziz bi Salman said his country would also extend a voluntary cut of another 400,000 barrels per day, bringing the total to around 2.1 million barrels.

OPEC will review its production levels on March 5-6. The cartel continues to be concerned over the impact of the ongoing trade war between the US and China. Since the early July meeting, the dispute escalated. Fears of a global recession because of the protectionist policies have weighed on demand for petroleum. Additionally, daily US output at 12.9 million barrels per day, a new record according to the Energy Information Administration, was a factor in the production cut. Meanwhile, the Saudi’s IPO of Aramco at a valuation of $1.7 trillion on its local stock exchange, was another reason for a reduction to stabilize, and perhaps push the price of crude oil higher at the winter OPEC meeting.

The price of crude oil drifted higher in the aftermath of the cartel’s decision.

Source: CQG

After closing at $58.33 on December 5, the price of January NYMEX WTI futures rose to a high at $59.85 on Friday and settled at over the $59 level.

Source: Barchart

The price of nearby February ICE Brent oil futures closed at $63.39 on December 5 and traded to a high at $64.86 on Friday and settled the week at over the $64 per barrel level.

Source: CQG

Brent’s premium over WTI closed at $5.05 on Thursday and moved to $5.31 on December 6 as the Brent benchmark outperformed the WTI price of crude oil.

The takeaway from the OPEC meeting was that had OPEC not acted to cut output, the price of the energy commodity would have likely experienced a significant decline. OPEC’s mission is price stability, and it appears they made a move the balanced the supply and demand equation, for now.

In other news on Friday, the US jobs data was bullish for the stock market as the economy added 266,000 jobs in November, and average hourly earnings rose by 3.1% from a year ago. Next week, the markets will face the Fed meeting, the election in the UK, the Aramco IPO, and the monthly WASDE report from the USDA.

 

Highlights in commodities:

  • February gold falls 0.52% and settled at $1465.10 per ounce
  • March silver falls 2.98% on the week as the volatile precious metal settled at $16.596 per ounce
  • Platinum posts a 0.09% gain on the week. January platinum was at a $566.30 per ounce discount to February gold futures, which narrowed since last week
  • Palladium moved 1.99% higher for the week as it settled at over $1846 per ounce after reaching a new record high at $1853.20 on Friday
  • March copper recovered 2.37% as the red metal sits at the $2.7250 level
  • December iron ore futures moved 2.96% higher on the week
  • The BDI continued to recover as it moved 7.36% higher since November 29 to the 1575 level
  • January Rotterdam coal fell 6.29% since last week
  • January lumber moved 2.52% lower since November 29 as the price continued to hover around the $400 per 1,000 board feet level
  • January NYMEX crude oil moved 7.30% higher since November 29 after OPEC cuts production further on Friday
  • February Brent crude oil moved 3.60% higher since the previous report as Brent underperformed NYMEX crude oil after outperforming last week in the leadup to the OPEC meeting
  • The premium for Brent over WTI in February closes Friday at the $5.31 level in the aftermath of the OPEC decision
  • January gasoline moved 3.54% higher while January heating oil futures rose 3.92% over the past week
  • The gasoline crack spread in January was 15.91% lower while the January heating oil crack moved 3.21% to the downside since November 29 as products underperformed crude oil and reflected seasonal factors
  • Natural gas recovered 2.32% on January futures closing the week at $2.334 per MMBtu. The EIA reported a withdrawal of 19 bcf from storage on Wednesday for the week ending on November 29
  • January ethanol moves 0.44% higher on the week on strength in gasoline
  • January soybeans rose 1.45% since last week
  • March corn fell 1.18% on the week
  • CBOT March wheat declined 3.18% since last week. March KCBT wheat trading at a 93.50 cents discount under March CBOT wheat down 1.25 cents since November 29. The discount moved marginally towards the historical norm since last week
  • March sugar rose 1.85% since November 29
  • March coffee posted a 4.83% gain on the week and probed above the October 2018 high at $1.2550 on Friday
  • March cocoa rose 1.52% since November 29
  • March cotton moved 0.98% higher since last week
  • January FCOJ futures fell 3.50% since the previous report
  • February live cattle fell 0.97% since last week
  • January feeder cattle were 0.65% lower since November 29
  • February lean hog futures moved 0.92% lower over the past week
  • The December dollar index futures contract fell 0.55% on the week
  • March Long-Bond futures trading at 157-20 down 1-16 for the week
  • The Dow Jones Industrial Average closes at 28,015 on Friday, December 6, down 36 points from November 22. The S&P 500 rose by 0.16% since last week. The VIX was up 1.04 on the week and was trading at around 13.66 on Friday after a volatile week that took the volatility index to just below the 18 level on December 3
  • Bitcoin was trading at $7,487.24 on Friday down $277.14 or 3.57% since November 29.
  • Ethereum was trading at $149.39 on Friday, down 3.99% since the last report

 

Price Changes for the week:

DBC closes at $15.67 per share, up 36 cents since November 29

Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.34 billion and trades an average daily volume of 1,038,615 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume rose slightly over the past week while the net assets declined marginally, and the price of the ETF was posted a gain.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.