Budrigantrade review and analysis of metals and raw materials market

Budrigantrade.com - With the most aggressive rate hikes in a generation, the Federal Reserve is determined that the United States will not experience a recession in its efforts to stem the energy-fueled inflation that is plaguing the economy.

It is unlikely that the central bank wins; Not because of OPEC and oil that costs more than $100, but rather because of a small group of fuel refiners in the United States who are determined to make huge profits while the rest of the economy collapses.

Sure, these refiners, which include Marathon Petroleum and Valero Energy, aren't necessarily breaking the law. All they are doing is making money for shareholders and businesses, which is perfectly normal in a business cycle like the energy one right now.

To comprehend it better, there's a serious crush in the stockpile of gas, and especially diesel, from the conclusion and cutting back of a few processing plants during the pandemic. Those who have remained in the industry are now profiting from the situation by providing only what they can afford or, more accurately, wish to provide. They are not investing any of the money they are earning in either expanding their facilities or purchasing idle facilities that can be reopened to provide customers with some measurable relief.

Bloomberg gauges that more than 1.0 million barrels each day of U.S. oil refining limit - - or around 5% by and large - - has closed since the Coronavirus episode at first destroyed interest for oil in 2020. According to Turner, Mason & Co., an energy consultancy, capacity has decreased by 2.13 million additional barrels per day outside of the United States. The conclusion: The squeeze will only get worse given that there are no plans to expand.

As gasoline reached record highs above $4.50 per gallon at some U.S. pumps and diesel reached an eye-watering peak above $6, Bloomberg's energy analyst Javier Blas wrote in a commentary this week, "The oil market is projecting a false sense of stability when it comes to energy inflation."

Blas said, referring to the issue growing at the Fed's door, "The real economy is suffering a much stronger price shock than it appears, because fuel prices are rising much faster than crude," and that matters for monetary policy.

He states, "To give some real dollar idea of what he is talking about:" Crude is trading happily just above $110 a barrel, which is expensive but not outrageous if you own an oil refinery. I have bad news for you if you are not an oil baron: It appears as though oil costs between $150 and $275 per barrel.

The West Texas Intermediate (WTI), the benchmark grade for U.S. crude, has fluctuated between $95 and $110 per barrel for weeks. However, the price of jet fuel futures at the New York Harbor is $275. Diesel? That is at $175, while fuel is around $155. Before taxes and marketing margins, these are all wholesale prices. When those are added, the customer may experience even more confusion.

Naturally, things weren't always like this. Crack spread, the industry term for the profit made from "cracking" fuel products from crude, was around $10.50 a barrel on average for at least 35 years. The spread then crossed $30 during the so-called golden age of refinery, from 2004 to 2008. It reached a record high of nearly $55 last week.

Due to a worsening supply deficit and demand that is almost back to pre-pandemic highs, crude and refined oil prices are now vastly different. Diesel stocks on the East Coast of the United States have dropped to levels last seen in 1990. Between the end of 2019 and the present, oil distillation capacity decreased by 1.9 million barrels per day outside of China and the Middle East, marking the largest decline in 30 years. Last but not least, Western sanctions on Russian energy products are also limiting diesel supply around the world, or at least in Europe.

Last week, Abdulaziz bin Salman, the Energy Minister of Saudi Arabia, stated that the OPEC+ alliance of oil exporters he oversees had nothing to do with the refining crisis in the United States.

Abdulaziz stated, "I did warn this was coming back in October," adding that America was not the only nation. Over the past few years, numerous refineries around the world, particularly in Europe and the United States, have shut down. All levels of the world are running out of energy.

In addition, the crisis will get worse in terms of supply as well as price. John Catsimatidis, a New York City billionaire who owns a refinery and fuel station, issued a warning the previous week that the East Coast might experience diesel rationing.

Catsimatidis, whose company owns and operates 350 gas stations, does not anticipate a shortage of gasoline—merely a very high price. He added that Memorial Day travel should surpass last year's numbers and that drivers will pay the highest gasoline prices ever.

Contrary to speculation that record-high prices could delay purchases, truckers and haulers who make deliveries on U.S. roads said they are doing everything they can to stock up on diesel.

Ben van Beurden, CEO of Shell Plc, stated to investors last week, "Demand is not that easily destroyed."

However, some analysts contend that fuel demand must be eliminated at these prices or higher; otherwise, the economy will suffer.

John Kilduff, a partner at the New York-based energy hedge fund Again Capital, stated, "Concerns over the economy are legitimate and real." The expense of diesel addresses the genuine economy. At more than $6 per gallon, that hurts businesses' bottom lines, and we might be about to see a major decline in diesel demand.

Already, there are fewer Amazon delivery trucks on the road, and credit card spending has skyrocketed, indicating that consumers are rapidly running out of options. For those long-oil, everything is coming home to roost.

On Thursday, the International Energy Agency issued a warning that rising pump prices and sluggish economic growth are likely to significantly hinder the demand recovery throughout the remainder of this year and into 2023.

Kilduff and other analysts are also concerned about the extent to which the Fed will raise interest rates.

Money market traders have priced in an 83% possibility of a 75-basis, or three-quarter point, hike in June, and the central bank has approved a 25-basis, or quarter point, increase in March and a 50-basis, or half point, increase in May. In an interview that was made public on Thursday, Fed Chairman Jerome Powell almost categorically denied that there will be such a significant increase for the following month. He said that he prefers to keep raising rates by 50 basis points for at least two more months.

However, Powell also made a troubling statement, stating that the US economy's ability to recover from the Fed's rate hikes will be affected by external factors. He stated that it won't be simple to slow wage growth, which is a key component of inflation right now. There are a few reasons why achieving that right now is quite challenging. The first is simply the fact that unemployment is extremely low, the labor market is extremely tight, and inflation is extremely high.

The U.S. economy expanded at its fastest rate since 1982 in 2021, expanding by 5.7% after contracting by 3.5% in 2020 as a result of disruptions brought on by the pandemic.

However, inflation has increased at the same rate as the economy, if not slightly faster. In the year to December, the Personal Consumption Expenditure Index, which the Fed closely monitors, increased by 5.8% and 6.6%, respectively. The fastest growth since the 1980s was reflected in both readings. In the year to April, the Consumer Price Index and the Producer Price Index, two additional important indicators of inflation, increased by 8.3% and 11%, respectively.

Only 2% per year of inflation is tolerated by the Fed. Powell has stated that the central bank will hold seven rate hikes in 2022, which is the maximum allowed by the calendar of meetings this year. He stated that until a return to the 2% inflation target is achieved, additional rate adjustments could occur in 2023.

"My apprehension is that the Fed could go overboard," said Kilduff. " In the coming months, there will be significantly less liquidity in the system as a result of the federal government's abandonment of the Covid-related physical stimulus. We could end up cutting off entire economic arteries if the Fed attacks the system with excessive rate hikes.

Bloomberg's Blas is in agreement regarding the potential economic trainwreck.

He stated, "The energy shock will hit the economy harder the longer the refiners make super profits." Demand reduction is the only option. However, a recession will be required for that.

Oil: Weekly Settlements and WTI Technical Outlook On Friday, the global benchmark for crude, the London-traded Brent, closed at $111.22 a barrel, up $3.77, or 3.5%, from the previous day's close. It was down 0.7 percent for the week.

According to reports, China may soon begin to ease its coronavirus lockdowns in Shanghai, which has seen limited economic activity over the past seven weeks as a result of strict movement restrictions imposed by the authorities. This news fueled Brent's rally.

However, gains in Brent were constrained by the European Union's persistent delay in agreeing on a ban on Russian oil, particularly in light of opposition from Hungary, which is concerned about running out of energy supplies from Moscow.

The benchmark for U.S. crude, the New York-traded West Texas Intermediate, or WTI, closed at $110.16, up $4.03, or 3.8%. It rose 0.7 percent for the week.

WTI surged as a result of what appears to be a shortage in the United States' oil refining capacity. This shortage has led to record fuel prices at the pump this week, with diesel reaching all-time highs above $6 per gallon and gasoline reaching all-time highs above $4.50.

According to Kilduff, the divergence between Brent and WTI is "a story of two oils."

He went on to say that "the holdout on a European embargo of Russian oil, especially by Hungary, is limiting Brent's upside," while "WTI is basking in bullish glory from the refining crunch in fuels that's sent U.S. pump prices to record highs."

According to Sunil Kumar Dixit, chief technical strategist at skcharting.com, the weekly settlement at just above $110 indicated that oil bulls were positioned for the subsequent leg higher at between $116 and $121.

According to Dixit, "so far, $98 has proven to be a hard floor, while $104-$106 keeps the momentum up." More buyers will be drawn in by volatility-induced mild consolidation from $106 to $104, while weakness below $104 will push oil toward $101 to $99."

He added that the bullish momentum will be invalidated by a decisive break below $98. That could cause a correction of between $18 and $20, putting WTI at risk for $88 and $75 in the medium term.

Gold: The adage "All that glitters is not gold" applies to the market activity and technical outlook for the week. However, the yellow metal in and of itself is barely shimmering these days.

In Friday's meeting, gold plunged momentarily underneath the key $1,800 level on New York's Comex, speeding up a selloff that started in mid-April.

It did recover that level after finding support in the $1,700 range, but it was not enough to undo the damage from earlier in the week that put it on the path to a fourth consecutive weekly loss. Since the week ended April 8, it has lost approximately $165, or 8%, of its value.

As has been the case in recent days, the resurgent dollar, which reached new 20-year highs, contributed to gold's fall on Friday. After reaching a high of 105.05 earlier in the day, the Dollar Index, which compares the U.S. currency to six other major currencies, did fall to a session low of 104.5.

Even though that helped gold recoup some of its losses, the change had little effect on the direction of the dollar. Analysts expected the currency to reach new two-decade highs in the coming days as they speculated about how hawkish the Federal Reserve might be when it raises interest rates in the United States.

According to Jeffrey Halley, who is in charge of conducting research on Asia-Pacific markets for the online trading platform OANDA, "only a sudden U.S. dollar sell-off is likely to change the bearish technical outlook" for gold.

Comex front-month gold futures for June ended the day at $1,810.30 per ounce, a decrease of $14.30, or 0.78 percent. $1,797.45 was the session low, the lowest level since January 30. June gold was down 4% week-to-date.

According to Dixit of skcharting.com, gold could return to $1,700 territory despite Friday's rebound from the lows if it fails to clear a string of resistance ranging from $1,836 to $1,885.

Dixit, who conducts his analysis based on the spot price of gold, stated, "Since the current trend has turned bearish, sellers are very likely to come at the test of these resistance areas."

“Bearish pressures will attempt for $1,800 and then $1,780 - $1,760 as gold has turned bearish in the short term. A decisive close above the range has the potential to extend the recovery to $1,880. If not, bearish pressures will push gold down to $1800 - $1780 and extend the decline to $1,760 in the following week.

Be that as it may, if gold breaks and supports above $1,848, its recuperation can reach out to $1,885 and $1,900, he added.