Commodities and Crypto Update

Oil

Crude prices are finishing modestly weaker despite Sanofi and GSK announcing a setback with their COVID-19 vaccine.  Adding to the demand recovery woes was New York State Governor Cuomo’s announcement that NYC dining will close on Monday, a harsh reminder of how easily this virus can spread.  The demand recovery is firmly priced in to start at the end of the first quarter and much of that is thanks to vaccine breakthroughs.  For the demand recovery outlook to remain in place, vaccine execution must be successful.  For both the US and Europe to get the virus under control, more vaccines need to get approvals and not see an production or distribution issues.

After the huge technical break of the $50 level, Brent crude appears ready to consolidate a bit longer until the trajectory of the dollar appears clearer.  Next week, the focus in the oil market will primarily be on virus-relief bill negotiations and the Fed’s policy meeting.  If we see more fiscal aid and new balance sheet guidance, the dollar could remain vulnerable, thus providing underlying support for oil prices.

The OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting will be held on Wednesday, which could bring upon new tensions on this month’s agreement to a gradual output boost.  These monthly meetings will be key for easing any concerns that oversupply conditions could return to the oil market.

WTI crude prices were unfazed after another rise in rig counts, up 12 to 258 rigs.  If US production continues to rise, that will complicate any production hike delays from OPEC+.

Gold

Gold prices are rallying as investors remain optimistic that the Fed will deliver again next week and that the recent surge in jobless claims will force Congress to break the impasse over a COVID relief bill.  Gold is on firm footing despite the dollar rebound as a plethora of risk events remain in place over the next week.  The virus front is concerning as Covid hospitalizations are rising, the daily death toll is posting some of the deadliest days in American history, and expectations are high that we could see one more surge in cases after the holiday season.  Brexit will likely be dragged out longer and that should ultimately force the BOE and ECB to remain ultra-accommodative over the next few months.

The US economy is poised to see more restrictive measures and that should drive both the Fed and lawmakers to do more for the economy.  The stimulus trade will likely get a small boost this month and could see something more substantial once President-elect Biden is sworn in.

Bitcoin

Bitcoin continues to drift lower despite steady interest interest from old and new money.  This week, 169-year old Old Mass Mutual purchased $100 million in Bitcoin for its general investment fund and MicroStrategy raised $400 million to buy more Bitcoin.  Bitcoin’s consolidation around the $18,000 level is healthy for many crypto bulls looking for a break of the $20,000 level.  If the cryptocurrency headlines continue to be positive but prices fail to rally, that could be concerning going into year end for some investors.

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