Most commodities rose Tuesday as decline in USD resumed. WTI crude oil jumped +2.6% to 71.65 while Brent crude gained +2.7% to 70.53. Others in the energy complex also advanced with heating oil surging +3.4% to 1.81 and RBOB gasoline adding +1.7% to 1.78. However, profit-taking was then seen Wednesday morning as API reported increase in fuel inventory and Total’s CEO said oil price is too based on supply. The benchmark contract is currently trading at 71.4.
USD plummeted against major currencies as the market anticipates the Fed will leave its policy rate unchanged at 0-0.25%. US LIBOR has been trading below Japan LIBOR since August 24 and the spread has been widening. USD might have been replaced Japanese yen as a currency borrowed for carry trades. This poses more downside risks to the dollar’s outlook should market sentiment improves further.
The best performer was NZDUSD which rallied +1.7%. New Zealand’s GDP grew +0.1% qoq in 2Q09, compared with consensus of a -0.2% contraction, following a upward revision to -0.8% in 1Q09. The unexpected step out from recession surprised the market and sent the Kiwi to 13-month high.
After market close, the industry-sponsored API reported that crude inventory rose +0.28 mmb, compared with consensus of -0.95 mmb, to 337.2 mmb in the week ended September 18 as driven by rise in imports and decline in refinery runs. Gasoline stockpiles also surged +3.82 mmb while analyst forecast it to gain only a modest +0.5 mmb. Surprisingly, distillate stockpiles drew -1.88 mmb as demand improved.
The US Energy Department will probably report crude inventory drew -1.5 mmb while both gasoline and distillate stockpiles gained, -0.2 mmb and +1.2 mmb respectively.
Christophe de Margerie, the CEO of Total SA, oil giant based in France, commented that oil price should fall below $60/bbl is it’s valued based purely on demand and supply. The market is ‘speculating’ that oil supply will be insufficient in 5-6 years’ time but ‘in the short term, it’s true there is oversupply. In the medium to long term, we see oil prices steady to say the least, with a risk to go to higher levels if we can’t meet demand’.
Gold price gained +1.1% to 1015.5 and silver rose +1.4% to 17.12 Tuesday on USD’s weakness. Recent rally for gold has been driven by substantial decline in USD, together with policymakers’ discussions about diversifying central banks’ reserves away from the dollar.
Renewed selling pressure in USD was seen as the market expects the Fed will continue to adopt a highly accommodative monetary policy for an extended period of time despite economic recovery. Moreover, news said that one of the focuses in the G-20 meeting at Pittsburg will be on the large US current account deficit which would trigger worries about stability of USD again.
US Oil Inventory
| Weekly change in inventory as of 18/09/09 | Change | Market Expectation | Previous |
| Crude oil | -1.450 mmb | -4.73 mmb | |
| Gasoline | +0.50mmb | +0.55 mmb | |
| Distillate | +1.45 mmb | +2.24 mmb |
Comparison between API and EIA reports:
API (Sep 18) | EIA (Sep 18) | |||||
Actual | Inventory | Previous | Forecast (using API’s inventory level) | Inventory | ||
Crude oil | +0.28 mmb | 337.2 mmb | +0.63 mmb | +0.45 mmb | 337 mmb | |
Gasoline | +3.82 mmb | 212.6 mmb | +1.35 mmb | +4.90 mmb | 213 mmb | |
Distillate | -1.88 mmb | 168.4 mmb | +5.20 mmb | +0.21 mmb | 168 mmb |
API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department (EIA)for its weekly survey. Oil inventories from the API and EIA moved in the same direction for over 70% of the time, using data in the past 4 years.
Source: Bloomberg, API, EIA