Commodities and Cryptos: Oil’s path higher, Gold turns positive, China’s Bitcoin blow

Oil

Crude prices continue to climb higher as both short-term supply and demand fundamentals suggest the oil market will remain tight throughout the winter.  The crude demand outlook is turning very upbeat as some scientist’s models predict a steady decline in COVID cases through March.  Holiday bookings will continue to pick up, supporting jet fuel demand and a trucking demand crisis will likely mean diesel demand will remain very strong.

A cherry on top for the bullish outlook is that low natural gas inventories and a cold winter for the northern hemisphere could mean added demand for crude as an alternative energy source.  Today’s rally in crude prices is impressive as it has been a steady climb higher this week, alongside a strengthening dollar that normally dampens appeal for commodities.   Oil prices have one direction to go for the remainder of the year and that is higher.

Before the New York open, WTI crude softened after Iranian Foreign Minister Hossein Amirabdollahian said Iran nuclear deal talks will resume soon.  Expectations for sanction relief for Iran have diminished since Iran’s inauguration day.  Negotiations will be a long drawn-out process that will likely require compliance before the US gives any sanction relief.  Extra Iranian barrels of crude seem unlikely to be a 2021 story.

Gold

Gold prices turned positive after Evergrande’s woes extended beyond China.  US Evergrande investors reportedly have not yet received interest payments and the China Evergrande New Energy Vehicle Group Ltd has a serious shortage of funds.  It looks like China won’t save Evergrande but will try to contain any systemic risks, which should lead to some safe-haven flows for bullion.

Gold has been battling against a stronger dollar that stemmed from surging Treasury yields post-Fed.  Gold is in a very tough spot and volatility will remain elevated with the risks remaining to the downside.  The US growth story will continue to improve if COVID modelers are right about a steady decline in COVID cases through March.  If Evergrande’s fallout is contained over the weekend, gold could be vulnerable for a test of the $1700 level.

Bitcoin

Bitcoin was dealt a major blow after China’s central bank said all cryptocurrency transactions are illegal and must be banned.  Bitcoin initially fell over 5% and the other top coins dropped around 10%.   Overseas exchanges that offer Chinese residents services are illegal, also taking aim at Chinese nationals who work at those exchanges are at risk of an investigation.  Bitcoin, Ethereum, and Tether were specifically named as cryptos that can’t circulate in China.

Beijing withheld banning possession of cryptocurrencies, which would have dealt a massive blow to the entire crypto space.  A banning of possession of cryptos probably would have sent everything crypto 20% lower.  If you are a Chinese crypto holder, you might be deciding now is the time to cash out.  Three years ago, crypto was heavily centralized in China, with over two-thirds of the mining happening there.  If Chinese crypto holders fear a ‘possession ban’ is looming, a tremendous amount of selling from old wallets may occur.

Bitcoin remains extremely vulnerable on the break of the $38,000 level, which could trigger momentum selling to the $35,000 level.

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