Oil prices were all fired up at the first trading session of the week.
The unusual winter storm playing in key areas of the world’s largest producer of oil saw an estimated four million barrels per day of oil output shut down in Texas and other states, alongside 21 billion cubic feet of natural gas output.
Oil traders are going bullish on the black liquid hydrocarbon, over the unprecedented cold snap in leading American energy hub, Texas. Also giving crude oil bulls enough gas to stay at least above the $60 price level is the recent progress against the COVID-19 pandemic, in turn, raising hopes for energy demand recovery.
What you should know
- Most recent data retrieved from the Energy Information Administration reveal the United States is currently the world’s largest producer of oil, producing about 19.45 million barrels per day or 19% of the world’s total crude oil production in 2019.
- At press time, Brent crude futures rallied by 1.13% to $62.84 a barrel with the Brent crude contract turning over in February 21 to the May 21 contract.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on other macros weighing on oil prices at least for the near term amid high positivity prevailing in global financial markets
“What began as a power issue for a handful of US states quickly turned into a global supply shock for the oil markets. Still, the re-start of shut-in US production and news that the Biden administration is exploring diplomatic re-engagement with Iran have contributed to a cooling of oil prices, despite the bullish inventory data.
“But “the day after”, see oil prices nudging higher amid ongoing evidence of recovery in global demand, mostly good news on the Covid-19 trends and anticipation of a nearly 2 trillion US stimulus designed to get people working again quickly.”
What to expect
- The sharp surge in crude oil prices before OPEC+’s all-important meeting next month means the calculus for the OPEC+ alliance becomes more complicated.
- However, as oil output stays constrained, crude oil stockpiles are dropping and with COVID-19 vaccines promising a return towards normalcy at the end of the day, expectations continue to run high for oil markets.
AFEX Commodities Exchange Limited (AFEX), a private commodities exchange company, has announced the first Warehouse Receipt Backed Commercial Paper in Africa. The paper has tech-enabled operations and a 24-hour fast cash turnaround for borrowers.
This was disclosed by AFEX in a statement issued and seen by Nairametrics on Thursday.
The $50 million Agri-SMEs fund is expected to bridge the funding gap between lenders and borrowers in the Nigerian agricultural sector with a commodity-backed instrument – for the first time.
Ayodeji Balogun, CEO, AFEX, stated, “The AFEX financing deal will help eradicate the high cost of procurement incurred by processors by deploying a discounted value of a warehouse receipt distributed among five leading players in the Food and Beverage, Trading Poultry and Animal Feed segments in Nigeria.
“The receiving companies are top 10 players in their respective segments. They have now been enabled access to a tool for managing price volatility, enabling up to 30% direct savings on prices.
“With our vision to reach a cumulative total of over $5 Billion in investment to the agriculture sector over the next five years, this financing deal is right on track to achieve this goal.’’
He added that as AFEX move towards building a derivatives market in Africa, “we want to be able to reduce exposure to price risk for stakeholders, by enabling them to hedge their positions and trade in commodity derivatives.”
Why it matters
- The warehouse receipts, which can then be transferred from commodities to a financial asset and listed under the borrower’s portfolio on the AFEX trading platform, will create a sustainable funding structure and address underfunding in the Nigerian agricultural sector.
- With the warehouse receipt system linked to financiers, the system allows financiers value and marks the commodities’ price to market on a real-time basis.
What you should know
- AFEX’s mission is to provide low-risk working capital facility for stakeholders in the Agro sector, in a way that is transparent and has a very high viable investment return.
- As a licensed commodities exchange and warehouse receipt system operator, it deploys a warehouse receipt system and collateral management infrastructure to increase market confidence for both lenders and borrower.
Gold prices suffered heavy losses at the last trading session of the week, hitting their lowest level in about three months, and recording the worst week since late November 2020.
Gold traders are going short on the precious metal over surging U.S. Treasury yields, which have put a dent in the non-yielding precious metal’s appeal.
At the time of drafting this report, Gold slumped by 0.60% at $1,764 per ounce.
Recent price actions reveal that it is their lowest since November 30, 2020, as gold prices have plunged by 3% in the week to date.
The U.S. Treasury yields, gold’s arch-enemy, continued to tick upward after hitting a near one-year peak earlier in the week. The dollar also looked set to end the week with gains, inching up on Friday.
Usually, higher inflation boosts the price of the precious metal in principle but also helps U.S Treasury yields, which in turn helps the opportunity cost of holding the safe haven shinny asset.
In an explanatory note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, spoke on gold’s recent price action-reaction amid the surging U.S treasury yields, and the Euro, which often exhibits a positive correlation with the precious metal
“Gold continues to struggle under the weight of real US yields but getting a timely reprieve from the weaker US dollar. Otherwise, the yellow metal would be trading below $1750.
“The street continues to watch the EURUSD movements like hawks. A move above 1.21 could provide an Alka seltzer moment, while a shift back to the low 1.2000’s could be the harbinger of doom for gold.”
Bottom Line
Gold traders are not keen on going long, at least for the near term, on the bias that rising U.S Treasury yields see investors showing less interest in the yellow metal.
Nairametrics
