Alan's Finance Blog

Gold Declines After the 5-day Rally. Correction Should Be Short-lived

Gold price rallied to 1062.7 before settling at 1056.3, +1.1%, as USD plummeted and crude oil soared. The yellow metal retreats to 1049 in Asia Friday, the first decline after surging for 5 days. We believe a correction is warranted as recent rally might have been overextended. However, any pullback should be short-lived. We remain bullish on gold in the long-term.

Investor Jim Rogers said that will not buy gold at current price as fundamentals do not support. However, he reiterated his long-term bullishness on bullion and anticipated it would reach 2000 in the next decade.

Crude oil price rallied to an intra-day high at 72.55 Thursday after the US reported a drop in initial jobless claims. Moreover, weakness in dollar against major currencies spurred demand for commodities. WTI crude oil finished the day +3% higher at 71.69. RBOB gasoline surged +3.5% to 1.78 and heating oil jumped +3.8% to 1.847.

Initial jobless claims fell to 521K in the week ended October 3 from 554K in the prior month. Apart from beating consensus of a fall to 540K, the reading has also reached the lowest level since the beginning of year. 4 week average also fell -9K to 540K from a week ago. The downtrend in claims is encouraging and should signal gradual improvement to employment conditions.

USD declined against major currencies as investors turned to stock markets and higher-yield currencies. The dollar index plunged to 75.68 before rebounding. Against the euro and pound, the greenback slid -0.7% to 1.48 and 1.6067 respectively. Against Australian dollar, the dollar plunged -1.9% to 0.9067 as unemployment rate in Australia surprisingly dropped to 5.7% in September.

According to Financial Times, a number of Asian central banks began intervention to curb the appreciation of their currencies. ‘Asian central banks intervened heavily in the currency markets…to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China. The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China’s decision in effect to re-peg the RMB to the dollar since July last year’. However, this did not seem to halt USD’ weakness.

Today, crude oil price retreats and USD rebounds after the Fed Chairman Ben Bernanke said the central bank will be ready to tighten policy when the economy ‘has improved sufficiently’. However, Bernanke stated at current stage ‘my colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period’.

Source: Oil’n'Gold

Crude Oil Recovers after the Plunge. Nr-term Outlook Remains Worrisome

WTI crude oil plummeted after a 2-day rally as petroleum product inventories increased more than expected. The benchmark contract slid -1.8% to close at 69.57. Others in the energy complex also dropped with heating losing -1.7% and RBOB gasoline falling -2.8%.

Crude inventory drew -0.98 mmb with declines seen mainly from the East Coast, Midwest and the Gulf Coast. Cushing stocks also fell -1.4 mmb during the week. Refinery runs were flat from the previous week and we expected to see reduction in coming weeks as weak demand and weak margins should discourage refiners.

Doubling the builds anticipated by analysts, gasoline inventory rose +2.94 mmb although demand rose to 9.27M bpd. Imports rebounded back over 1M bpd. Distillate stockpile also gained +0.68 mmb, compared with market expectation of a draw. Demand increased to 3.53M bpd during the week.

Despite the macroeconomic recovery, the underlying fundamentals in energy market remain weak. Total oil demand will contract on annual basis. On the supply side, non-OPEC countries such as Russia are producing excessive while compliance from OPEC is slipping.

Today in Asia, energy prices rebound as the dollar weakens. Crude oil recovers to 70.1 but we see limited upside as price should falter below 75.

Although Comex gold pulled back from intra-day high of 1049.7, price rallied for a 4th straight day and settled +0.5% higher at 1044.4. It’s impressive that gold remained strong despite dollar’s rebound yesterday. However, trading volume was rather thin and investors should beware of a retreat.

Today in Asia, the yellow metal extends gains and surges to 1051.8, another record high as the dollar resumes decline. Over the past 5 days, the yellow metal has risen +5%. Record high gold price should continue to weigh on physical demand. At the same time, rise in gold price should induce sales of scrap which in turns gold supplies. We worry that higher supply and lower physical demand would trigger price correction. That said, any correction should be short-lived and investors can consider accumulating the yellow metal on pullbacks.

On the macro front, BOE and ECB meetings are the focuses. The BOE meeting will likely be a quiet one as policymakers should maintain the policy rate at 0.5% and the asset buying program at 175B pounds. Since the meeting in September, economic data released signaled the UK’s economic condition has improved and the downturn should have ended in the third quarter. However, these improvements were not sufficient to trigger a BOE tightening.

The ECB should also keep its main refinancing rate at 1%. We expect the ECB President Trichet to comment on the euro’s strength.

Crude Oil Daily Technical Outlook

Nymex Crude Oil (CL)

Crude oil retreats sharply after rising to 7.197 and hit near term trend line resistance. With 4 hours MACD crossed below signal line, intraday outlook is turned neutral for the moment. Nevertheless, another rise is still mildly in favor with 68.16 support intact. Above 71.97 will bring rise resumption. Further break of 73.16 will indicate that fall from 75.0 has completed at 65.05 already. The corrective structure will in turn indicate that medium term rally is still in progress for another high above 75.0 before completion.

On the downside, below 68.16 will suggest that rebound from 65.05 has completed and will flip intraday bias back to the downside. Break of 65.05 will reaffirm the original bearish view that crude oil has topped out at 75.0 already and will bring fall resumption towards 58.32 key support next.

In the bigger picture, the lack of follow through selling so far dampens the bearish view that crude oil’s medium term rise from 33.2 has completed at 75.0. Nevertheless, risk remains on the downside as long as 73.16 resistance holds. A break below 65.05 support will solidify the case the crude oil has topped out in medium term again. In such case, deeper fall should be seen to test on 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) first and break will target a retest of 33.2 low. However, a break of 75.0 will indicate that rise from 33.2 has resumed for 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) instead.

Nymex Crude Oil Continuous Contract 4 Hours Chart

Nymex Crude Oil Continuous Contract Daily Chart

Crude Oil Daily Technical Outlook

Nymex Crude Oil (CL)

While intraday upside momentum in crude oil is not too convincing, further rise is still in favor with 68.16 minor support intact. Break of 73.16 will indicate that fall from 75.0 has completed at 65.05 already. The corrective structure will in turn indicate that medium term rally is still in progress for another high above 75.0 before completion. On the downside, below 68.16 will suggest that rebound from 65.05 has completed and will flip intraday bias back to the downside. Break of 65.05 will affirm the original bearish view that crude oil has topped out at 75.0 already and will bring fall resumption towards 58.32 key support next.

In the bigger picture, the lack of follow through selling so far dampens the bearish view that crude oil’s medium term rise from 33.2 has completed at 75.0. Nevertheless, risk remains on the downside as long as 73.16 resistance holds. A break below 65.05 support will solidify the case the crude oil has topped out in medium term again. In such case, deeper fall should be seen to test on 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) first and break will target a retest of 33.2 low. However, a break of 75.0 will indicate that rise from 33.2 has resumed for 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) instead.

Nymex Crude Oil Continuous Contract 4 Hours Chart

Nymex Crude Oil Continuous Contract Daily Chart

Oil Price Drops Despite Draw in Crude Stocks. Investors Worry About Fuel Demands

Crude inventory drew -0.98 mmb, compared with consensus of +2 mmb increase, to 337.4 mmb in the week ended October 2.Cushing also dropped -1.41 mmb. However, fuel stockpiles gained with gasoline stock building +2.94 mmb to 214.4 mmb and distillate stock rising +0.68 mmb.

WTI crude oil retreats after the report. Currently trading at 70.6, investors remain concerned about the demand outlook. RBOB gasoline price slides to 1.75 while heating oil plunges to 1.81.

US Oil Inventory

Comparison between API and EIA reports:

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

Crude Remains Under Pressure as Recovery Worries Linger

Crude oil price continues to edge lower gradually as economic data released in Europe failed to deliver a concrete message for sustainable economic recovery. Stock markets trade sideways, awaiting more clues on growth outlooks.

Final reading on the Eurozone’s services PMI was revised slightly upward to 50.9 in September while the Sentix Investor confidence improved to -12.6 in October (consensus: -12) from -14.6 a month ago. Moreover, retail sales slid another -0.2% mom in August. In the UK, services PMI rose to 55.3 in September, from 54.1 in the prior month. To net, these indicators came in largely inline with market expectations and gave no surprise that the economy is expanding rapidly.

European Stock markets fluctuate between gains and losses in morning session. UK’s FTSE 100 Index trades flat from last Friday while Germany’s DAX and France’s CAC 40 add +0.1%.

After failure to breach the resistance at 75 in mid-August, WTI crude oil has been trading within a trading range of 65-75 since then. We find that crude oil’s performance has been lagging that in stocks and the euro. This suggests that investors are paying more attention to energy fundamentals, rather than just being thrilled by market sentiments.

Record high inventory level, weak fuel demand (especially distillate) as well as slippage of OPEC compliance (compliance of 68% in August, compared with over 80% in 1Q09) has depicted a worrisome picture in the near-term. In fact, such backdrops do not justify current oil price level (around 70/bbl).

Then what makes the current price sustain? We believe it’s due to market forecasts of improving distillate demand in 4Q09. Apart from the traditional heating season in the fourth quarter as we enter winter, investors’ anticipation on rising distillate demand has hinged on improvement in US industrial production. Annual contraction in IP has moderated to -10.7% in August after reaching a trough in June (-13.3%). Continued recovery in IP probably will lead to more consumption in distillate.

Gold remains in consolidative mode but will likely gain for the second straight day amid weakness in USD. Others in the precious metal complex also climb higher with platinum rising to 1290 after plunging for 2 days to as low as 1266.4 last week. Silver also rebounds to 12.3.

Source: Oil n Gold

Crude Remains Under Pressure as Recovery Worries Linger

Crude oil trades below 70 in Asia Monday as Friday’s employment data fueled concerns on economic recovery. Weakness in stock market despite renewed decline in USD suggests investors are refraining from taking risks for the moment.

The MSCI Asia Pacific Index slides -0.4% today. In Japan, the Nikkei 225 Stock Average loses -0.1% to 9724. In Singapore, the Straits Times plunges -3% to 2583 while South Korea’s KOSPI drops -1.5% to 1620. Asian equities are catching up the decline Friday after US’ unemployment rose to 9.8% in September with the number of non-farm payrolls plummeting -263K units.

Economist Nouriel Roubini said last week that stock and commodity prices may fall in coming months as the pace of economic recovery does not justify strong rallies in recent months. Roubini said ‘markets have gone up too much, too soon, too fast. I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year’.

Gold price edges slightly higher after a strong rebound in NY session Friday. Currently trading at 1005, the yellow metal’s trading momentum has been helped by weakness in USD. The dollar dropped against major currencies after Boston Fed President Eric Rosengren said last week that the Fed funds rate should be kept at record low until economic recovery is proved to be sustainable. Several Fed presidents will be speaking this week with the NY Fed President William Dudley speaking at New York today and Kansas Fed President Thomas Hoeing speaking tomorrow.

The dollar plunges to 1.46 against the euro after rising to 1-month at 1.448 Friday. In contrary to the market’s expectation, leaders at the G-7 meeting did not criticize about dollar’s weakness.

Commitments of Traders

• Crude Oil: Net speculative long positions dropped one-third to 42142 contracts in the week ended September 29. After rising for 3 consecutive weeks, net long positions in crude should have peaked at 62216 contracts.
• Natural Gas: Net shorts dropped another week to 145 951 contracts as natural gas price rose during the week. Record high in gas storage should continue pressure on the cash market which in turn forces the futures market to move lower.
• Gold: Net speculative long positions declined slightly after soaring for the 5th consecutive week.
• Silver: Although net speculative long positions for silver rose 47 410 contract, the pace of increase has moderated as we expect net longs in silver to decline in the coming week
• Platinum: Net long positions dropped after surging to a record level of 18.2K. Decline in US auto sales in September fuel pessimism in the market again

Source: Oil n Gold Report

Crude Oil Weekly Technical Outlook

Nymex Crude Oil (CL)

Crude oil’s rebound from 65.05 extended further to as high as 69.93 last week and the strength of the rebound mixed up the near term outlook. With 4 hours MACD crossed below signal line, initial bias is neutral this week. On the downside, below 68.10 will suggest that rebound from 65.05 has completed and will flip intraday bias back to the downside. Break of 65.05 will affirm the original bearish view that crude oil has topped out at 75.0 already and will bring fall resumption towards 58.32 key support next.

On the upside, above 69.93 will target 73.16 first. Break there will indicate that fall from 75.0 has completed at 65.05 already. the corrective structure will in turn indicate that medium term rally is still in progress for another high above 75.0 before completion.

In the bigger picture, the lack of follow through selling so far dampens the bearish view that crude oil’s medium term rise from 33.2 has completed at 75.0. Nevertheless, risk remains on the downside as long as 73.16 resistance holds. A break below 65.05 support will solidify the case the crude oil has topped out in medium term again. In such case, deeper fall should be seen to test on 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) first and break will target a retest of 33.2 low. However, a break of 75.0 will indicate that rise from 33.2 has resumed for 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) instead.

In the long term picture, there is no change in the view that fall from 147.27 is part of the correction to the five wave sequence from 98 low of 10.65. While there rebound from 33.2 is strong and might continue, there is no solid evidence that suggest fall 147.27 is completed and we’re still preferring the case that rebound from 33.2 is merely a corrective rise only. Having said that strong resistance should be seen between 76.77/90.24 fibo resistance zone even in case of another rise and bring reversal for another low below 33.2 before completing the whole correction from 147.27.

Nymex Crude Oil Continuous Contract 4 Hours Chart

Nymex Crude Oil Continuous Contract Daily Chart

Nymex Crude Oil Continuous Contract Weekly Chart

Nymex Crude Oil Continuous Contract Monthly Chart

Crude Oil Daily Technical Outlook

Nymex Crude Oil (CL)

Crude oil’s rebound loses some steam ahead of 73.16 resistance but still, further rise is mildly in favor with 68.10 minor support intact. As discussed before, the corrective look of the fall from 75.0 to 65.05 argues that it’s merely a consolidation in the larger rise but 73.16 is yet taken out. Hence, we’ll stay neutral for the moment. On the downside, below 68.10 minor support will indicate that rebound from 65.05 has completed and will revive the case that fall from 75.0 is still in progress. Retest of 65.05 should be seen first. On the upside, however, break of 73.16 resistance will indicate that fall from 75.0 has completed and will turn focus back to this high.

In the bigger picture, the lack of follow through selling so far dampens the bearish view that crude oil’s medium term rise from 33.2 has completed at 75.0. Nevertheless, risk remains on the downside as long as 75.0 resistance holds. A break below 65.05 support will solidify the case the crude oil has topped out in medium term again. In such case, deeper fall should be seen to test on 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) first. However, a break of 75.0 will indicate that rise from 33.2 has resumed for 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) before completion.

Nymex Crude Oil Continuous Contract 4 Hours Chart

Nymex Crude Oil Continuous Contract Daily Chart

Crude Oil Price Weakens as Investors Take Profits Ahead of US Employment Data

Crude oil price retreats below 70 as investors take profit ahead of the US employment report. Indicators released earlier this week have been rather mixed and ‘employment’ components have surprised to the downside. Falls in stock markets and advance in USD indicate reduction in risk appetite.

Consensus forecast the number of payrolls probably dropped -187K in September after a -216K decline in the prior month. Unemployment should have risen to 9.8% from 9.7%. Indeed, several market participants (i.e. investment banks) have revised down their estimates after the disappointing ISM manufacturing data, Challenger employment and ADP employment change.

The employment component of the ISM manufacturing index dropped -0.2 points to 46.2, indicating no much improvement from the -63K drop (August) in manufacturing payrolls in September. In a report by the Confederation Board, consumer confidence index fell to 53.1 from 54.1. Meanwhile the labor differential, the % of people thinking jobs are plentiful vs the % of people thinking jobs are hard to get, widened to -43.6 from -40 in August. This suggested the outlook on job market remains weak.

ADP showed that employment plunged -254K in September, compared with consensus of -195K, from a revised -277K in August. Challenger jobs sank -30.2% yoy in September after a -13.8% decline a month ago.

Stock markets plummet in both Asian and European sessions. UK’s FTSE 100 Index opens lower and is currently dropping -1% to 4998. Germany’s DAX and France’s CAC 40 also falling -0.7% and -1.2% respectively. In Asia, the MSCI Asia Pacific Index slid -2.1% while Japan’s Nikkei 225 Stock Average dropped -2.5%.

Natural gas for November delivery remains under pressure after dropping -7.8% to settle at 4.466 Thursday after the US Energy Department reported gas storage increased +64 bcf to 3589 bcf in the week ended September 25. At current level gas inventory has set a new record high by exceeding the peak level of 3545 bcf in November 2007.

Gold price continues to trade below 1000 as USD strengthens further. Others in the precious metal complex also weaken with silver sliding for the second consecutive day, losing another -1.3% to 16.2 and platinum dropping another -1% to 1275.

US auto sales plunged -23% to an annualized rate of 9.22M in September, suggesting pullback in sales after the government’s ‘cash to clunker’ rebate program.