Despite the widely held view that energy prices decline as COVID infections spread, the cost of crude and its products staged a massive rally, with crude gaining 6% on the week. Demand was not driving the heat-up, but shortages and long-term supply concerns stimulated the buying. The mysterious rise could be justified by continued reports of the Omicron variant causing less severe disease than feared. Steady supply increases from Russia, OPEC producers, and the release of stockpiles from the U.S. should have held crude down, but the rally didn’t stall until Friday.
The upward bias in crude could also result from production problems in Libya, Kazahkstan, and Nigeria. Also, Chinese gasoline stockpiles declined 42% on a week-to-week basis, while a severe cold spell plagued the upper Plains in North America. As a result, crude oil for February delivery traded at $79 per barrel midday Friday.
The Federal Reserve’s release of their meeting minutes confirmed a “hawkish” and faster shift in monetary policy, which caused a sell-off in precious metals. Gold and silver were hit particularly hard, with February gold down $30 per ounce and March silver down about $1.10 on the week. Many analysts are baffled by the decline as demand for silver rises and investors watch inflation statistics. Our USDA recently projected wholesale fats and oil prices could be up 37 to 40%! March silver brought $22.40 per ounce midday Friday.
Wheat collapses on lack of threats
Like the dough bread is made from, wheat prices deflated last week, with Minneapolis — a hard wheat used for pizza and bagels — leading the way down. Lack of cold weather threats in the Central Plains, low demand, and selling from Argentina contributed to the downward pressure. March Minneapolis wheat was down 60 cents per bushel while Chicago March was down 35 cents on the week at $7.54.
Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at 800-411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.
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