Energy & Precious Metals: Weekly Review and Upcoming Calendar

By Barani Krishnan

As the market anticipates upcoming meetings and economic reports, it’s essential to focus on recent developments like Merck’s announcement regarding its Covid pill. This could influence market risks in the short term more significantly than other factors.

Recall that global risk assets experienced a surge after the announcements of Covid-19 vaccine efficacy numbers in November, with companies reporting remarkable success rates. This positive development caused Brent crude oil prices to jump 27% that month and saw a 53% increase so far this year.

It’s important to note that while the excitement over Merck’s treatment is justified, the rollout of vaccines has faced challenges. Many regions, especially in lower-income countries, are still waiting for doses, and political issues have contributed to a slow vaccination process in some wealthier nations.

Merck’s molnupiravir pill, developed with Ridgeback Biotherapeutics, reportedly reduces the risk of hospitalization or death by around 50% in unvaccinated patients. This oral medication’s efficacy appears unaffected by the timing of symptom onset or patients’ previous health factors. Notably, it has proven effective against various Covid variants, including the highly transmissible Delta variant.

Merck has initiated production for molnupiravir and aims to produce 10 million treatment courses by the end of 2021, with additional doses planned for 2022. The company has committed to supplying the U.S. with around 1.7 million courses of the medication, pending emergency authorization from health regulators.

Additionally, Merck is in talks with various governments about supplying the drug, implementing a tiered pricing strategy to improve global accessibility. They’ve also established licensing agreements with generic manufacturers to help ensure that low and middle-income countries can access the treatment, pending local regulatory approvals.

The potential of having a breakthrough recovery drug could lead to renewed market interest and risk-taking behavior. If successful, it might also stimulate job recovery efforts, potentially influencing the Federal Reserve’s decisions regarding stimulus tapering and interest rate adjustments. As inflation concerns grow, prioritizing economic recovery and addressing supply chain issues will be increasingly important, even if it leads to higher interest rates that may cool bullish markets.

Oil Market Overview

In September, oil prices experienced their best month in three, climbing nearly 10%. The start of October was similarly positive, buoyed by excitement over Merck’s Covid pill, even as OPEC+ evaluated plans to increase oil production.

U.S. oil settled higher at $75.88 per barrel on the first trading day of October, reflecting a 2.6% uptick for the week. Brent crude also rose, finishing Friday’s trading session at $79.28 per barrel.

OPEC+, which consists of 13 member nations plus 10 other producers led by Russia, is contemplating exceeding its current production increase plan in response to high oil prices and consumer demand for more supply.

With ongoing supply crunches and pressure from soaring consumer prices, analysts suggest OPEC+ may need to adjust its strategy to prevent market volatility and mitigate potential negative impacts on global growth.

Gold Market Overview

Gold prices showed signs of recovery as October trading commenced, inching upward amid a broader rebound in risk assets. The easing of both Treasury yields and the U.S. dollar contributed to this modest gain.

Gold futures settled at $1,758.40 per ounce, marking a small increase. Weekly performance showed a 0.4% gain despite previous losses. Analysts note that gold could be benefiting from a flow of safe-haven investments given the increasing market uncertainty.

Upcoming Energy Market Events

• Monday, Oct 4: Cushing crude inventory estimates (private).
• Tuesday, Oct 5: Weekly report on oil stockpiles.
• Wednesday, Oct 6: EIA weekly report on oil reserves.
• Thursday, Oct 7: EIA weekly report on natural gas supplies.
• Friday, Oct 8: Baker Hughes weekly survey of rig counts.

Disclaimer: The insights provided here represent a diverse range of views for a balanced analysis. The author does not hold positions in the commodities and securities discussed.