Commodity prices trade narrowly Monday due to Labor Day holiday in the US. Crude oil price edges slightly higher to 68.12 from Friday’s close of 68.02. This week’s focus is on OPEC’s meeting Wednesday besides the weekly inventory report.
In September 2008, the OPEC announced the first production cut in response to the worst recession since World War II. Reductions were followed in October and December. The efforts helped crude oil’s sharp fall from 147.27 (July 2008) find a bottom at 32.8 in January 2009.
At meetings in March and May this year, the organization decided to keep production quotas unchanged as oil price has rebounded strongly. In fact, many OPEC members have been producing above their assigned quotas in order to benefit from the rising oil price since April. We believe this practice is harmful to the demand/supply outlook in the oil market. Although it’s unlikely for the OPEC to announce any production cut at the upcoming meeting, we hope the committee can reinforce compliance to production quotas.
Gold price retreats for the second day after jumping more than +4% last week. As the precious metal approaches 1000, investors tend to take profit first. In fact, the market’s view on gold outlook is mixed. While some believed the breakout of recent trading range last week suggested gold’s long-term uptrend has resumed and gold will extend gains above 1033.9, others remained cautiously optimistic as the yellow metal had faltered below 1000 level several times before. We are among the latter. As we mentioned in previous articles, inflation expectation and USD are critical factors determining gold price. However, the market has not shown much worry about inflation yet while the dollar remains trapped within a range. In other words, we have not got sufficient fundamental supports to confirm resumption of gold’s long-term uptrend yet.
Return of safe-haven appeal as policymakers warned of risks in financial sectors and buoyant jewelry demand in preparation for festive seasons in India might help boost price, a sustainable rise beyond 1000 requires more concrete macro developments.
Commitments of Traders
- Crude Oil: Net speculative long positions dropped more than 10K to 28594 contracts. Retreat in oil price after spiking to 75 was certainly a reason. However, CFTC’s stricter regulations on position limits also discouraged futures trading
- Natural Gas: Net shorts declined to 169.8K. However, gas price should remain weak in the coming future due to huge gas storage
- Gold: Net speculative long positions increased modestly to 184.5Kcontracts. With gold price breaking out of consolidative range and approaching 1000, further rise in net long is expected in the coming week
- Silver: Net speculative long positions for silver rallied above 30K level to 34.4Kcontracts last week. Net long in silver should push high next week in tandem with gold. Moreover, improvement in economic outlook, should benefit silver more than gold as the former has been widely used in industrial applications
- Platinum: Net long positions retreated last week. As US’ ‘cash for clunkers’ program ended, investors’ worry about auto market reignited
