Investing.com - Fear across global markets is expected to hit fever pitch in the coming week, with stock markets likely tanking and favorite commodity plays oil and gold rising, as Israel enters the much-anticipated heightened phase of its war with Hamas, attacking Gaza from land, air and sea.
On the global markets front, analysts expect a renewed rush into safe-havens like the dollar, US Treasuries and gold - which hit $2,000 an ounce in Friday’s post-settlement trade itself as a full-scale Israeli ground invasion of Gaza looked imminent.
Stocks are likely to tumble. The S&P 500 has already fallen more than 10% since late July, when it reached its high for 2023, though the index is up over 7% year-to-date.
Oil had one of its most volatile weeks for the year, rising more than 2% in a day, then falling just as much or more in the next session.
Over the past three weeks, global crude benchmark Brent went to almost $94 a barrel. It then tumbled to around $85 as traders realized the war had not impacted Middle East oil traffic - despite the fighting occurring right beside some of the world’s biggest crude exporters, including Iran, the fifth largest shipper of the commodity and an avowed Hamas supporter.
With the full-blown escalation, not many are sure how the crude trade will perform.
“It’s a ‘mess’, in one word,” John Kilduff, a partner at New York energy hedge fund Again Capital, said, referring to the war. "No oil trader, I can tell you, knows where this thing is heading and everyone is just racing from one headline to another. It’s a field day for vol’ traders though,” he said, using the abbreviation for volatility.
Oil: Market Settlements and Activity
New York-traded West Texas Intermediate, or WTI, crude for delivery in December did a final trade of $85.16 on Friday after officially settling the session at $85.54, up $2.33, or 2.8%.
The US crude benchmark was in yo-yo mode almost the entire week, rising 2% or more in one session to promptly give that back in the next. WTI finally ended the week 3.6% lower.
London-traded Brent crude for the most-active December contract did a final trade of $90.44 on Friday after officially settling the session at $90.48, up $2.55, or 2.9%. For the week, the global crude benchmark fell nearly 2%.
Oil: WTI Technical Outlook
Barring impact from the war, WTI - from a purely technical standpoint - is poised to see immediate resistance at $85.50 next week, above which sits its next challenge of $86.50, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
“Major resistance remains static at $88.30, and that may act as a trigger for extended gains that could reach the threshold of $91,” said Dixit.
Temporary gains also may be guided by minor positive gestures on WTI’s Daily Stochastics and RSI, or Relative Strength Index.
“On the flip side, consolidation below $86.50 - and more importantly below $88.30 - will keep the door open for a retest of the support zone of $83.50, followed by $82.50,” Dixit said.
“Weakness below $82.50 can bring $81, while major support is seen at $79.50. Of course, this is barring the impact of the war."
Gold: Market Settlements and Activity
Gold bulls recaptured the $2,000 an ounce territory that had eluded them the past two months as investors sought shelter in safe havens.
Gold’s most-active futures contract on New York’s Comex, December, settled Friday’s official trading session at $1,998.50 an ounce, up just $1.10, or 0.05%.
In post-settlement though, the benchmark gold futures contract did a final trade at $2,016.30, showing a gain of $18.90, or 0.95%, on the day.
The spot price of gold, more closely watched by some traders than futures, settled at $2,006.38, up $21.49, or 1.1%, after a session high of $2,009.41.
Gold: Price Outlook
Given the geopolitical push from the war in the Middle East, as well as chart positioning, spot gold’s next logical targets appear to be $2,035, then $2,055, followed by the major resistance of $2,080, said SKCharting’s Dixit.
Any pullback towards the horizontal support zone of $1,990 - $1,980 would be used for covering shorts and re-entry with longs aiming to join the rally, which looks poised for $2,080, he said.
“The current bullish momentum is solely driven by safe haven appeal due to fears of war escalations and hence, any slowing in fighting or the pace of headlines emerging from the war could trigger a sharp correctional wave abandoning major support levels,” warned Dixit. “Traders should exercise utmost caution while trading on margin to avoid mishaps.”
Natural gas: Market Settlements and Activity
US natural gas futures jumped 9% on the week, returning to the mid-$3 perch held two weeks ago, amid a smaller-than-expected storage build and as bulls sought a hedge against concerns about an impending data blackout on associated gas production until mid-November.
The most-active December gas contract on the New York Mercantile Exchange’s Henry Hub settled Friday’s trade down 1% at $3.440 per mmBtu, or million metric British thermal units. For the week, it jumped 58.4 cents.
The rally came after US Energy Information Administration's storage report on gas for the week ended Oct. 20 came in at 74 billion cubic feet, or bcf.
That was still higher than the 61-bcf injection seen during the same week a year ago and the five-year (2018-2022) average increase of 66 bcf for this time of year. But it was lower than the 80-bcf build forecast by Wall Street’s analysts who follow natural gas.
“The EIA’s storage report came in at 74 Bcf, lower than the analyst average,” Gelber & Associates, a Houston-based advisory on energy trading, said. “Near term contracts along the forward curve saw a boost in price similar to the front-month contract in response to the data release, and have rallied sharply since.”
The Gelber note said most weather models also foresaw what it described as “notably colder temperatures to the Lower 48” states in the coming week, a development that ought to positively impact the forthcoming gas storage report.
Since a key report from Rescom on associated gas will also not be published for another three weeks, traders sought a higher risk premium in Thursday’s market, the note said. Associated gas is a by-product of shale oil drilling and has been partly responsible for the record daily production of 103 bcf this week.
“The associated storage release through ResComm demand increases …will be unavailable until mid-November, as a planned EIA systems upgrade has caused the release to be delayed until the 16th,” Gelber said.
“That release will contain storage data for both next week and the week following. Without access to the prior week’s storage data that normally serves as a baseline to their models, analysts may be significantly off the mark, especially if fundamentals see notable shifts in the meantime. As a result, the potential for price volatility on the 16th is high.”
Until August came along, the year had been a maddening one for gas bulls, who got up each time only to get squashed again by record gas production, often benign weather that needed neither heating or cooling and spotty export demand for liquefied natural gas, or LNG.
The sum effect of all these, of course, was a stockpile overhang running double-digits higher than a year ago and looking impossible to clear right away.
Yet, like the skies opening up after a storm, things suddenly began to brighten up for gas longs over the past two months: Production started tapering, the volume of gas burned for power generation became consistent, LNG takeup improved and gas in storage started melting.
Natural gas: Price Outlook
The extent of price consolidation in natural gas is likely to be limited to fill the runaway gap left at $3.03 and aligned with the 5-week EMA, or Exponential Moving Average, SKCharting’s Dixit said.
“Momentum accumulation from the demand zone may resume the upward rebound, which can gather steam on clearing through the 50-week EMA, which sets the stage for the next leg higher target pinned on the 200-week SMA, or Simple Moving Average, of $3.78,” said Dixit.
Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about.