Posts Tagged ‘Oil’
Oil Price Pulls Back as EZ Economic Sentiment Weakened
Crude oil pulls back in European session in tandem with drops in stock markets. Slightly worse-than-expected consumer sentiment in the Eurozone drove investors away from higher-yield assets. Currently trading at 77.6, the February contract, to be expired tomorrow, returns to the lowest in 2 weeks after recovering briefly Monday.
ZEW economic sentiment in the Eurozone dropped to 46.4 in January (consensus: 48.2) from 48 in the prior month. The reading for Germany also slid to 47.2 (consensus: 49.8) from 50.4 in December. This 4th consecutive monthly fall was driven by concerns about large deficits in some of the countries (e.g.: Greece) in the 16-nationed region. Moreover, recent economic data in Germany is mixed, signaling the pace of growth may be slowing down.
In the UK, CPI surged +0.6% mom in December, following a +0.3% increase a month ago. The rise doubled market expectation of +0.3% and translated into an annual rate of +2.9%, exceeding the BOE’s target of +2%. According the ONS, the surge in annual rate was driven by some one-off events happened in 2008: -2.5% VAT cut, plunge in oil price and discounts done by shops amidst recession. However, inflation pressure will probably increase further after the VAT returns to normal (17.5%) this year.
Gold price continues consolidating with a narrow range as USD’s movement against major currencies is mixed today. GFMS released it 2009 survey last week and forecast the yellow metal’s price may rise to 1230, as well as may fall to 990, in 1H10. In the presentation, the research agency said that robust investment and concerns of inflation and weakness in USD should support price in coming months. Moreover, low real interest rate environment and bumpy economic recovery should be beneficial for the precious metal. Concerning supply, mine production growth will be ‘marginal’ and does not represent change in trend.
That said, GFMS also downside risks which include potential increase in net official sector sales and growing risk of ‘Vulnerability’ to an eventual investment setback.
Stock markets retreat. In Asia, the MSCI Asian Pacific Index lost -0.6%. Benchmark indices for Japan, Australia, Taiwan, etc also slipped. In Japan, the Nikkei 225 Stock Average dropped -0.85 to 10765 as rise in Japanese yen may hurt exports. Honda Motor slid -2.1% while Panasonic lost -2.6% Consumer financing company Promise plummeted -9.7% as the government refused to relax rules for consumer lenders. In contrast, Hong Kong’s Hang Seng Index gained +1% to 21678 after news said that Shanghai may allow individual investors to invest in abroad.
In Europe, stocks decline as disappointing earnings results by Alstom and Casino Guichard-Perrachon hurt sentiments. Benchmark indices lose almost -1%.
Source: Oil n Gold
China Guided Yields Higher Again, Commodities Did Not React
Crude oil trades within a narrow range of 78 and 78.7 in Asian session. Sideways trading is expected to continue until European or even NY sessions when more economic data will be released. The People’s Bank of China guided its benchmark 1-year bill yield higher for the second time this month to cool down growth in loans. However, the market did not react much on it.
China’s central bank sold one- year bills at a yield of 1.9264%, up +0.08% from last week. This is the second time in a month the PBC guided the 1-year bill yield higher. Reports showed that property sales in China surged +75.5% yoy to RMB 4.4 trillion in 2009 while property price rose +7.8% yoy, the fastest in 18 months, in December. The Chinese government has been worrying about asset bubbles and began tightening last week by raising open-market yields and raising required reserve ratio for bank deposits.
On the macro side, BOC rate decision is the focus of the day. However, we do not expect any change in the central bank’s monetary stance. The BOC will likely decide to keep the overnight rate unchanged at 0.25% and reiterate ‘conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target’.
Industry-specific data will be API’s inventory which will be released after market close. Another week of huge stock-builds should resume recent correction in energy prices.
PGMs have clearly taken over gold and silver as the darlings of precious metal buyers. While platinum contract rallies to 1637, up +2.6% from Friday’s close, palladium contract jumped +3% to 461. Both contracts reach highest levels in one and a half year.
According to ETF Securities, holdings of platinum and palladium rose +0.15% and +2.81%, respectively, on January 18 from January 8.The newly launched US ETFs boosted investment demands.
Strong China Commodity Demand Can Boost Gold Price as It Increases Inflation Pressure
Gold price stays firm in European morning as the dollar continues to weaken against major currencies. We receive strong trade data from China yesterday but most investors only related strong imports to crude oil and base metals. This is understandable as China has become the world’s largest gold producer.
However, strong imports can still help boost gold price, in an indirect way. Robust demand from China tightens physical markets and increases inflationary pressure. This will force the Chinese government to appreciate RMB, despite in a small magnitude. Appreciation in RMB is positive for commodity in general. At the same time, the disappointing US employment data in December may help reinforce the Fed’s stance to keep its policy rate low for an extended period. An environment of low interest rate together with rising inflationary pressure is supportive for gold.
The strong momentum in Chinese commodity demand in 2009 should carry forward to 2010 although the pace may moderate due to unwinding of stimulus measures. Copper imports rebounded sharply to 369.4K metric tons in December (+29% yoy) after plunging to 263.1K metric tons in October. Imports reached a record high of 477.K metric tons in June. Iron ore and concentrate also recorded a prominent +80% yoy increase to 62.16M metric tons during the month. However, not all base metals received strong demand. Take a look at aluminum. Despite strong annual increase, the amount imported in December stayed at depressed level (-73% from record high made in April 2009). The reason is that Chinese production of aluminum rose in recent months and it’s expected China will become a net exporter of aluminum in 2010.
Surge in demand for iron ore and concentrate has been driven by strong auto sales which drove demand for steel higher. According to the China Association of Automobile Manufacturers, China’s sales of passenger cars, buses and trucks rose +46% to 13.6M units, the fastest pace in 10 years. This also suggested that China has taken over the US’s throne as the world’s largest auto market.
Crude oil price falls for a second day in European session. Currently trading at 81.75, the February contract has plummeted -2.6% from a 15-month high at 83.95 made yesterday. Apart from crude oil, others in the energy complex also gets hammered as weather in the Northern hemisphere is expected to get warmer later this week. Heating oil drops to 2.16 while gasoline falls to 2.135. Both commodities reached 15-months Monday.
Source: Oil n Gold
Crude Reverses Gains as China Raises Yield and Weather May Get Warmer
Crude oil reversed gains after failing to test 84 in NY session Monday. The February contract ended the day at 82.52, down -0.3%. Currently trading at 81.9, the decline accelerates as the central bank of China rolled out more tightening and weather forecasts suggested temperature will turn warmer later this week.
The People’s Bank of China (PBOC) sold 1-year bills at a yield of 1.8434% in open market operations. The yield has been staying at 1.7605% since August 2009. This may be a sign that China is trying to tighten the market more aggressively than expected. Last Thursday, PBOC offered RMB 60B worth of 3-month bills at 1.3684% in its weekly open-market operation, +4 bps higher than the rate kept since August. The move indicates that China would continue to guide market interest rates higher and absorb liquidity from the market through issuance of central bank notes.
Weather forecasts said that temperature will return to normal in eastern cities such as New York and Boston later this week. This news dampened bullishness as recent rally in energy price was driven by extremely cold weather in the Northern hemisphere. Traders believed the adverse weather condition should boost demand for energy.
Gold price settled at 1151.4, up +1%, after surging to as high as 1163 yesterday. A weak dollar may help push the yellow metal higher this week. Platinum extends its rally to 1602.5 in Asian session today. The benchmark outperformed others as the launch of the first US ETF spurred investment demand.
Last Friday, ETF Securities’ first US platinum and palladium ETFs started trading with strong volume. Initial allocation of the platinum and palladium ETFs were 9,969 oz and 9,996 oz, respectively, volume traded on the first day (reflecting both primary and secondary trade) reached 414,742 shares for platinum and 294,943 shares for palladium. Platinum holdings in the non-US ETFs also rose modestly by +158 oz to hit a fresh high, while palladium holdings fell by -5.5k oz to 1.155M oz.
Source: Oil N Gold
Strong China Imports Pushed Crude Price Higher
Crude oil price rose to as high as 83.67 after China reported strong imports in December. In 2009, robust demand in emerging countries, especially China, was the major driver for energy prices. We expect the strength to continue this year although withdrawal of stimulus measures may slow the pace modestly.
According to the Chinese Customs, crude oil imports surged +24% to 21.26M metric tons in December. On annual basis, the nation imported 203.8M tons in 2009, compared with 178.9M metric tons in the previous year.
Industrial activities in Asia has been picking up rapidly after slumping to very low levels in early 2009 as driven massive government stimulus plans. In China , the government implemented a plan worth $506B to stimulate growth, particularly in infrastructure and construction sectors. As a whole, the nation’s GDP is expected to grow by more than +8%.
The market’s focus is not policy tightening this year. Demand outlook for commodities will be affected if China starts tightening. However, we believe the government will only exit from the stimulus plans after a self-sustainable growth is seen in the economy. Therefore, the negative impact on commodity prices should not be too much.
Gold price rallied for the second consecutive day amid USD’s correction. The February contract for the yellow metal surged to a 1-month high of 1163 as the dollar’s decline for 3-low against the euro spurred gold buying. Disappointment in December employment report lowered expectations for a Fed rate hike as early as in June. Traders liquidated their long positions in USD and turned short.
Commitments of Traders:
Crude Oil: Net speculative long positions rose to 108.8Kcontracts, the highest 10 weeks, as price surged amid strong economic data and extremely cold weather. Although elevated inventory levels suggested energy fundamentals remained dismal, correction in USD indicated crude investment might still be robust in coming weeks
Natural Gas: Net speculative short positions surged to 156.6K contracts. Despite decline in gas inventory, the ample supply continued to depress price
Gold: Net speculative long positions declined 227.8K contract despite rally in price. Although net longs in gold have plummeted more than -10% from the peak in November, they remained at high levels
Silver: Net speculative long positions in silver rebounded to 395K last week. Silver price rose to a 1-month high as signs of global economic recovery spurred speculations that demand for silver in industrial activities should rise
Platinum: Net longs soared to 20.4K contracts, the highest level in 4 weeks. While strong auto data in China and OECD economies were supportive to price, launch of the first-ever platinum ETF in the US triggered investment demand
Energies Extend Gains as Strong China Trade Drives Sentiment
Crude oil extends rally to 83.95 in European session. Weakness in USD, abnormally cold weather in the Northern hemisphere and strong demand from China are pushing energy prices higher. Oil products also advance. Heating oil surges to 2.224. The benchmark contract has rallied in the past 4 weeks as government reports showed declines in distillate inventory. Gasoline price also rises to 2.185 as the rally accelerated after an upside break of 2.11 on January 4.
Attacks in Nigeria once again spurred worries about production disruption. Chevron reported that its Makaraba-Uyonana pipe was breached on January 8. This forced the company to shut down 20B bpd of crude oil production.
Rebel groups who want a share of oil revenues have been a threat to Nigeria’s oil production. Among them, the Movement for the Emancipation of the Niger Delta (MEND) is the largest group. The
MEND signed an indefinite ceasefire on October 25, 2009 and agreed to have peaceful talk with the government. However, it resumed attack in mid-December as member was dissatisfied with the progress of the negotiations.
Gold stays strong with other commodities as USD weakens. The February contract rose to as high as 1163 before pulling back to 1157.
USD’s rally against the euro accelerated after breaching the cluster of 1.4218-1.448. Currently trading at 1.453, the greenback has plummeted to a 3-week low against the euro as unexpected decline in payrolls evaporated traders’ hope for Fed’s tightening in 1H10.
Stock markets in both Asia and Europe advance as driven by robust trade data in China. Apart from strong commodity imports, export growth from China, up +17.7%, indicated global economic recovery is taking place in a fast pace.
In Asia, the MSCI Asia Pacific Index ex Japan rose +1.2%. Benchmark indices in Australia rose +0.8% while indices for both China and Hong Kong rose +0.5%. In European morning, UK’s FTSE 100 Index rises +0.6% to 5565.2, Germany’s DAX adds +0.4% to 6065 while France’ CAC 40 gains +0.7% to 4074.
Oil Price Rises Above 80 on Better Macro Outlook but Fundamentals will Play a Key Role in 2010
WTI crude oil extends the 8th day of rally above 80 on speculations for growth in energy demand as US weather remains below-normal. The February contract surged to as high as 81.16, the highest level since October 26, in European session. While macro-economic outlook and equity market performance will continue to play a role in driving crude oil price, a stronger emphasis will be placed on fundamentals this year than in 2009.
Crude oil price advanced +78% in 2009. However, US oil inventory reached the highest level in almost 2 decade. Look at timespreads, the steep contangoes also suggest severe oversupply in the market. At the same time, the correlation between oil price and stock market rose to 45% in 2009, almost doubling that in the prior year. These evidenced that the strong performance of crude oil last year was driven by macroeconomic outlook and market anticipation of better fundamentals in the future.
As we enter 2010, investors should focus on demand growth. Again, it’s widely expected that China will remain the locomotive for growth. According to the US Energy Department, crude oil demand should rise +1.1M bpd to 85.219M bpd in 2010. Of the 1.1M bpd increase in demand, 0.405M bpd will come from China while only 0.09M bpd from OECD economies.
In 2009, the inverse correlation between USD and crude was prominent. However, this pattern may fade this year. The impact of the dollar’s movement on crude oil depends on its cause. For instance, if USD rises as the US economy improves rapidly and outpaces other countries. This would benefit commodities.
Gold price rebounds strongly to 1118 in European session. Having traded below 1100 for most of the time in the last 2 weeks, the yellow metal appears ‘cheap’ to buyers. Unlike crude oil, we expect strength in USD will continue to pressure gold. In fact, the pile-up of huge short USD/long gold positions in 2009 remains an overhang on gold’s outlook.
Energy Prices May Slide Further After Consolidation
Slump in energy prices stabilizes in European session. WTI crude oil recovers to 74 after plunging to as low as 73.53 earlier in the day. Heating oil and RBOB gasoline also edge higher after falling for 4 days. However, as demand outlook remains dismal and official view on US’ economic development is far from optimistic, energy prices may weaken further in the near-term.
From recent comments by OPEC members, we are almost certain that the organization controlling the world’s 40% oil production will maintain output quota unchanged at the meeting on December 22. While the member countries said that they are satisfied with current oil price and do not believe adjustment in oil production is required, we notice that the overall compliance has deteriorated further. A survey showed that total production by OPEC – 11 (excluding Iraq) exceeded quota by an aggregate 1.66M bpd in November. In October, total production was 1.5M bpd above quota. While this is predictable as most countries try to benefit from the rally in oil price, investors should beware that the increase in production may pervert the fundamentals of energy market slowly. In fact, non-OPEC production growth has been improving. It’s expected that rise in non-OPEC supply will be enough to meet the rising oil demand next year. Therefore, the need for OPEC production growth will drop.
On the other hand, gold’s rebound after sliding to 1136.1 Monday suggests strong demand for the yellow metal. Gold has been treated as a good hedge against inflation and depreciation in USD. Central banks’ (including India, Sri Lanka and Mauritius) purchase from the IMF in November and reduced gold sales from European central banks confirmed this notion. However, the Bank of Korea does not agree with it. Lee Eung Baek, head of the Reserve Management Department, said that ‘there’s an illusion in gold…We follow the big trend. Gold isn’t the trend. Out of more than 200 nations, how many countries have bought bullion?’, indicating the central bank does not find gold investment attractive.
Undoubtedly, weakness in commodity prices has been driven by strong rebound in USD. The greenback’s strength has been driven by speculations of an earlier rate hike by the Fed and then by increase in risk aversion as the Fed Chairman Ben Bernanke stated that the US’ economy will face significant headwinds. USD rises against all major currencies except for Japanese yen which is also treated as ‘safe-haven’.
Advance in Japanese yen today is also spurred by the new set of stimulus policy announced by the government. The new 7.2 trillion yen spending package includes 3.5 trillion yen for the region, 600B yen for employment and 800B yen for the environment.
At today’s BOC meeting, policymakers will most probably announce to keep its policy rate at 0.25%. Recovery has been seen in Canada since the last meeting. Unemployment rate surprisingly dropped to 8.5% with 79.1K increase in payrolls in November. However, GDP growth in 3Q09 missed market expectation. It’s unlikely that the central bank will deliver a more hawkish view before recovery proves to be self-sustainable. Therefore, we expected the BOC will reiterate that ‘conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target’.
Commodity Prices Generally Lower Ahead of Non-farm Payrolls
World markets generally head lower ahead of release of US non-farm payrolls. WTI crude oil slides for a 3rd consecutive day as investors worry that poor employment data may signal delay in economic recovery. Currently trading at 75.7, the benchmark contract in crude oil has moved towards the lower end of recent trading range of 72-82.
Consensus forecast non-farm payrolls in the US fell -114K in November following a huge drop of -190K in the previous month. Unemployment rate probably stayed at 10.2%. Most of market participants believed that October’s decline in payrolls was somehow too much and pullback this month is justified. Moreover, apart from positive jobless claims data released in recent weeks, seasonal adjustment might have also driven payrolls higher.
That said, an improvement is not certain. In fact, readings of some employment surveys were mixed. ISM manufacturing declined from its recent peak of 55.7 in October to 53.6 in November but employment component stayed above 50 for the second consecutive week. However, the major concern came from the services sector. Released Thursday, ISM non-manufacturing index slipped back into contraction territory and the employment component, at 41.6, remained poor.
Gold price also retreats after surging for 5 days and making a fresh high of 1227.5. Near-term overbought condition and broad-based decline in the commodity sector trigger the selloff. The benchmark contract currently trades at 1207 after sliding to 1201.4.
Stock markets also move lower. In Asia, the MSCI Asia Pacific Index lost -0.3%. In Australia, the S&P/ASX 200 Index dropped -1.5% which the NZX 50 Index in New Zealand slid -0.2%. In Japan, the Nikkei 225 Stock Average gained +0.5% as Prime Minister Yukio Hatoyama is expected to announce some new stimulus measures today.
In European morning, UK’s FTSE 100 Index slides -0.65 to 5279. Shares in Germany and France also plunge with both of DAX and CAC 40 Indices falling -0.5%.
Gold and Oil Fall Sharply as Dubai Debt Fear Drives Investors Out of Risks
Commodities drop sharply around the world as markets sentiments are deeply pressured by risk of contagion effect from Dubai debt payment delay request which could trigger second wave in the credit crisis. Gold extended the decline from record high of 1195 and falls sharply to as low as 1130 level before recovering. Crude oil’s selloff also accelerates after taking out 75.57 support and reaches as low as 72.39 so far. Global stocks are under much pressure with Nikkei closed -3.22% low at 9081. European stocks are also sharply lower with FTSE 100 and DAX dropping more than -1% in initial trading.
Dubai World, the government investor company, sought to delay debt repayment until at least May. The news was a shock to confidence in the region and triggered much doubt in governmental support. More importantly, this will be a troubling development for international banks which are increasing dependent on Middle East markets as source of businesses. It’s believed that UK’s RBS, HSBC, Barclays, Lloyds and Stand Chartered are having large exposures in case of defaults.
Gold’s selloff today is a significant indication of short term profit taking after the multi-month power rally to new record high of 1195. 1200 level should be an important psychological level in near term and some correction should be seen to keep gold below 1200 for a while, with some risks of a break of 1100 level. But 1072 should provide strong support to contain the pull back.
Crude oil’s outlook is noticeably worse and 75.57 level will become a key near term resistance level to limit recovery. The choppy fall from 82.00 level would likely extend further towards 70 in near term at least. Meanwhile, deeper decline towards 60 could be seen if sell off in global stocks persist next week.
