Posts Tagged ‘Platinum’
Gold, silver and rare earth; which is right for you?
Gold, silver & rare earth
Which has the strongest trend right now?
In today’s video we will be looking at the gold market, analyzing the silver market, and finally, checking into the rare earth market.
Before you look at the video, you may want to consider doing this as an exercise: Write down which market has the strongest trend – up or down. Then rate the markets. Number 1 ……..Number 2 …….Number 3 ……. Once you see the video it will become clear to you how we rate these markets. It might surprise you.
http://www.ino.com/info/670/CD3336/&dp=0&l=0&campaignid=3
If you’re using MarketClub’s “Trade Triangle” technology the answer is simple and you’ll discover it in a matter of seconds. If you haven’t used our “Trade Triangle” technology, this will be a good exercise for you to look and see just how powerful this technology is and how it can help your trading.
http://www.ino.com/info/670/CD3336/&dp=0&l=0&campaignid=3
We all know that gold has had a big move, but so have silver and rare earth stocks. So what’s next?
I hope this video helps outline some ideas that you can put to good use in the future.
As always our videos are free to watch and there are no registration requirements. All we ask in return is that you Tweet about us and share this video with your friends. Also, please feel free to comment on our blog.
http://www.ino.com/info/670/CD3336/&dp=0&l=0&campaignid=3
Enjoy the video and every success in trading,
Adam Hewison
President of INO.com
Co-founder of MarketClub
Crude Rebounds as Strong European PMIs Halt USD’s Rally
Crude oil rebounds to 73.2 in European morning in tandem with the equity market as strong manufacturing PMI readings in European countries boosted sentiment and buying interest in the Euro. The White House’s spending plan which will increase the country’s deficit to $1.6 trillion made investors worry about USD. Moreover, cancellation in ceasefire in Nigeria raised concerns about supply disruption in the region. However, we believe these triggers will only have short-term impact.
Major European countries reported better-than-expected PMI for January. In Switzerland, the SVME-PMI improved to 56 in January (consensus: 55.4) from 53.7 a month ago. In the Eurozone, the PMI is revised up to 52.4 in January from flashing reading of 52. Both the euro and the Swiss franc rebound against USD after tumbling last week. Unfortunately, the pound’s slump continue despite an unexpected improvement in PMI to 56.7. The market had anticipated a retreat to 53.9 from 54.6 in December. Sterling dives to a 1-month low of 1.585 against the dollar as the market forecasts the BOE will announce to pause the asset purchase program even the UK economy remains fragile.
Today, the US will release the budget plan which likely shows the nation’s budget deficit will reach a record of $1.6 trillion in the fiscal year ending September 30 before reducing to $1.3 trillion in fiscal year 2011. In order to stimulus economic growth and create job opportunities, the government will be spending $3.8 trillion.
In 2009, USD was under heavy selling pressure because the country printed money as a means to stimulate growth. Investors even speculated the euro or a basket of currencies would be replacing the dollar as the dominant reserve currency. However, such speculation diminished recently, especially the Greek fiscal problem caused dumping in the euro.
Last week, MEND, the main militant group in Niger River delta declared to end ceasefire and resume attack in the region’s oil facilities as the government failed consider the group’s demand for ‘the control of its resources and land’. The Niger delta has been facing militant attacks since 2006. Between 2006 and 2009, the country’s oil production has been reduced -25%.
Gold price changes little in European morning although USD halts its rally. Within the precious metal complex, gold has probably lost its appeal to platinum and palladium. For gold price to rally strongly, we may need to see more news about central banks buying the yellow metal and rising inflationary pressure.
Platinum and palladium hold above last week’s lows and rebound. While platinum edges +0.7% to 1519, palladium soars +1.2% to 420.
Source: Oil n Gold
Gold, Silver, Platinum…W.T.F.?
Brad Stafford here in place of Adam Hewison and I have a great new video for you. I’m sure many of you read that title and your mind went in the gutter, but today I’m going to show you a whole new meaning for this acronym and how it applies to gold, silver, and platinum.
These three markets have a lot of volume, government implications, and technicals lining up for potentially great trades. Gold makes a record high, then pulls back. Silver is inching towards an all-time high level and platinum is making people rethink their decision to go with a white gold wedding band.
Where do you stand in these markets and maybe more importantly, where should you stand?
Click here to find out what W.T.F. really stands for and what does it have to do with gold, silver, and platinum?
You’ve got to watch the video to find out.
http://www.ino.com/info/503/CD3336/&dp=0&l=0&campaignid=3
Brad Stafford
Director of Marketing
INO.com & MarketClub
Investors Take Profits After Relentless Rallies in Commodities
Crude oil price continues hovering at year-high level in European morning as the market awaits the inventory report. Apart from this report, there’s not much industry-specific data that investors can rely on this week. On the macro front, focus of today is inflation data from the Eurozone and the US. Moreover, regional manufacturing in the US should also trigger market sentiment which will decide oil price’s direction in the near-term.
Released earlier, Eurozone’s CPI moderated more rapidly than anticipated in September. The reading came in flat on monthly basis after rising +0.3% in August. The market had expected a gain of +0.1%. On annual basis, the headline reading contracted -0.3% while the core CPI was stickier and increased +1.2%. In the US, analysts forecast CPI would have risen +0.2% mom in September after surging +0.4% a month ago. On annual basis, contraction should have slowed to -1.4% following a decline of -1.5% in August. CPI is a barometer that investors have been monitoring as its outlook determines the Fed’s monetary policy.
The Empire manufacturing index probably fell to 17.75 in October after soaring to23-month high at 18.88 in the previous month. At the same time, the Philly Fed index might have dropped to 12 after rising 10 points to 14.1 in September. The regional manufacturing surveys will give important indication on how the ISM index moves from September’s level of 52.6.
Gold plunges to 1052 in European morning as investors take profits after the yellow metal rallying +9% in the past 2 weeks. Other precious metals also decline in sympathy. Silver falls -2.2% to 17.5 while platinum pares gains in the past 2 days and currently trades -1.2% lower at 1351.
Silver, which outperformed gold in recent rise, may undergo deeper correction as its fundamental outlook is not at all brilliant. Yesterday, both Rio Tinto and Fresnillo reported rise in silver supply in 3Q09. Rio Tinto said that its silver output rose +39% yoy in the third quarter to 2.12M oz while Fresnillo reported that its production in the white metal increased +7% yoy and +1% qoq to 9.6M oz. Although there are potential strike in Peru (the world’s largest producer in silver), it will be unlikely to eliminate supply surplus this year unless industrial demand picks up rigorously.
Stock market strengthens amid speculations on favorable earnings results. In Asia, the MSCI Asia Pacific Index climbed +0.6% as Japan’s Nikkei 225 Stock Average rose +1.8% to 10238.7 after Elpida memory posted the first operating profit in 8 quarters. Moreover, Credit Suisse recommended buying Panasonic Corp. Other indices such as Australia’s S&P/ASX 200 Index and South Korea’s Kospi Index also gained +0.6%. In Europe, benchmark indices fluctuate between gains and losses. In the US session, Goldman Sachs and Citigroup will report 3Q09 earnings.
Sentiment Returns and Commodities Surge
Crude oil price rallied to a 7-week high at 73.84 Monday as driven by strong equity market and weak USD. While market sentiment once again pushed oil closer to the key resistance of 75, stagnant fundamentals in energy market refrained price from an upside break. The benchmark contract eventually settled at 73.27, gaining +0.7% from last Friday’s close.
For fuel products, heating oil jumped +2.2% to a 7-week high as US Climate Prediction Centre forecasts temperatures in the Northeast and Midwest will drop below normal between October 15 and October 25. Investors anticipated a colder weather should spur higher consumption in heating oil. As lead by strength in the energy complex, RBOB gasoline also climbed +1.8%.
Gold price pared Friday’s loss and rebounded +0.8% to 1057.5 yesterday with the decline in USD remaining the major driving force. Silver surged to almost a 3-month high at 17.955 before closing the day +0.7% higher at 17.82 while platinum added +0.6% to close at 1347.3.
Stocks in US strengthened with Dow Jones Industrial Average gaining +0.2% to 9885.8 and S&P 500 Average adding +0.4% to 1076.2, the highest in a year. Investors were excited as Black & Decker Corp upgraded its 3Q09 earning forecast and Ford Motors said its auto sales in Europe rose +12% in September.
USD weakened against major currencies except for Japanese yen and British pound. The dollar index fell to 76.12. Against higher-yield currencies such as the euro, Australian dollar and New Zealand dollar, USD dropped to 1.48, 0.908 and 0.736 respectively after a brief recovery last Friday. British pound weakened against the dollar and the euro as the Center for Economic and Business Research said the nation’s interest rate should stay at a record low of 0.5% at least until 2011. At the same time, the British Chambers of Commerce said that the BOE should extend its bond purchase program by 25B pound to 200B pound next month so as to support economic recovery. Currently trading at 5-month low against the dollar and 6-month low against the euro, the pound will stay under pressure for some time.
Today in Asia, commodity prices change little as the market awaits more data both from the macro and industry side. Stocks rally with the MSCI Asia Pacific Index soaring +0.5%. In Japan, Nikkei 225 Stock Average gains +1% to 10114 as Japan’s exports should benefit from weakness in yen. Retail sales in New Zealand surprisingly increased +1.1% mom in August, compared with consensus of a +0.6%gain, from a drop of -0.5% in the prior month. Excluding auto, the reading surged +1.2% during the month. The better-than-expected data should increase speculations that the RBNZ will increase its policy rate earlier than previous estimated. Currently, the market is pricing in a move in January 2010.
Source: OilnGold
Commodities Edge Higher on a Quiet Day
Crude oil rises to 72.15 in Asia Monday. However, trading volume is thin as Japan, US and Canada markets are closed on holidays today. Last Friday, Dow Jones Industrial Average climbed +4% to 9684.94 and S&P 500 rose +4.5% to 1071.49. Rallies in stock indices to 1-year high spurs interest in oil markets as investors anticipate recovery in energy market consumption.
Despite the improved sentiment, crude oil price will continue to gyrate within recent trading of 65-75 until concrete evidence of demand recovery is seen. Over the weekend, Kuwait’s oil minister Sheikh Ahmad al-Abdullah al-Sabah said that ‘oil prices between 60 and 80 are suitable for exporters and importers’. Judging from outcomes from recent OPEC meetings and comments from member countries, OPEC seems to be satisfied with current price level. The likelihood for further output cut is low in coming few months. In fact, rising spare capacity and rise in oil price have triggered some members to produce more than their quotas. The International Energy Agency estimated OPEC’s compliance has fallen to 62% in September, compared with 66% in August and over 80% in the first quarter.
Gold price has little change after plummeting -0.7% last Friday. Although currently recovers to 1051, the yellow metal may still have risk to decline on long liquidation and USD’s technical rebound. However, gold should resume its uptrend after consolidation. Global central banks’ diversification away from the dollar is expected to pressure USD further. At the same time, diversification would increase central bank’s purchase of gold.
Commitments of Traders
- Crude Oil: Net speculative long positions rebounded to 50006 contracts last week as oil price recovered. While staying below the peak of 62216 contracts 2 weeks ago, net longs in crude oil continued to hover around high level in 2009, suggesting traders were not much affected by stricter CFTC regulations
- Natural Gas: Net shorts contracted for the second consecutive week. Gas price has rebounded strongly in recent weeks but we worry that high gas price would delay demand recovery. Record high gas storage should continue pressure on the cash market which in turn forces the futures market to move lower
- Gold: Net speculative long positions reached record high of 239668 contracts. At long positions have become more stretched, we feel it more necessary for gold price to correct
- Silver: Net speculative long positions pulled back after rising for 7 weeks. Recent rally in silver have been simply an amplification of gold’s rise. Similar to gold, silver is prone to a correction before resuming the uptrend
- Platinum: Net long positions recovered to 17955 contracts
Source: Oil n Gold
Weekly Fundamental Outlook for Energies and Metals – Industry Experts Raised Demand Outlook on Oil
After the RBA’s rate hike at the October meeting, biggest topic in the market has been ‘who’s the next central bank in the developed world to tighten monetary policy?’. While analysts have diverse opinions on which of RBNZ, BOE, ECB and BOC will be the next candidate, the majority anticipates the Fed to keep its unprecedentedly low policy rate at 0-0.25% until 2Q10 and BOJ’s 0.1% rate will stay even longer.
Interest rate differential continued to pressure USD. The dollar index plummeted to 14-month low at 75.996 Thursday before rebounding as investors took Fed Chairman Ben Bernanke’s speech as hawkish. The dollar index declined -0.7% on weekly basis. Weakness in USD drove demand for commodities and the Reuters/Jefferies CRB Index surged +3.8% to close at 262.55.
Crude Oil
Crude oil price was under pressure amid USD’s rebound earlier in the day. However, price pared losses after the International Energy Agency (IEA) upgraded the demand outlook for 2010 for a third consecutive month. The benchmark contract eventually settled at 71.77, adding +2.6% on weekly basis.
The US Energy Department (EIA) and the International Energy Agency released monthly reports last week. Both agencies revised upward their outlooks on world oil consumptions amid improvement in macroeconomic outlook.
The US Energy Department forecast crude demand will increase to 84.77M bpd in 2010 after a drop to 83.67M bpd in 2009. The 2010 forecast was +0.18M bpd above the projection made in September. However, the Department did not change the forecast on WTI crude oil price which remains to be 75/bbl by December 2010.
The International Energy Agency anticipated global oil consumption would rise to 86.1M bpd in 2010, +1.7% yoy as driven by +3.6% demand growth in developing countries while ‘demand from the world’s developed economies is expected to remain stagnant in 2010 after falling -4.5% this year’. The estimate was +0.35M bpd higher than the projection made in September. IEA also upgraded its 2009 consumption forecast to 84.6M bpd, -1.9% yoy. In September, the agency anticipated the demand will drop -2.2% on annual basis.
2 weeks ago, a meeting was carried out between permanent members of the UN Security Council and Germany, and Iran regarding Iran’s nuclear program. Unexpectedly, the meeting was ‘peaceful’ and the progress was better than expected. Iran agreed to let the International Atomic Energy Agency (IAEA) visit the Qum site on October 25. Moreover, Iran agreed to send most of the LEU stockpiles to Russia for further enrichment and then to France for medical research purposes. The deed aims at lowering Iran’s LEU level to what is required for making nuclear weapons.
The geopolitical tension between Iran and the world did boost oil buying. However, how serious is its impact on oil supply and price? In our view, the disruption on oil production is not that severe and the therefore, the impact on oil price is not too much.
Take the invasion of Iraq in 2003 as an example. In Iraq, oil production dropped -36% yoy to 1.34M bpd in 2003. However, oil production in the country had been falling -16% yoy to 2.12M bpd in 2002 and -4% yoy 2.52M bpd in 2001 after making a 20-year of 2.61M bpd in 2000. More importantly, crude production rapidly recovered +50% to 2M bpd in 2004.Concerning oil price, WTI crude rose +6% a week after the war began. However, the rally slowed down and eventually reversed to a fall of -12% in less than 2 months’ time.
Natural Gas
Natural gas price dropped -3.9% to settle at 4.77 Friday. Although the benchmark contract gained +1.1% on weekly basis, outlook remains uncertain and gas price should continue to trade with high volatility.
The US Energy Department forecast that total natural gas consumption will drop -2% in 2009 and -0.2% 2010. There compare to the estimates of a decline of -2.4% in 2009 and 0% in 2010. According to the Department, ‘weak economic conditions continue to hamper the industrial sector, where the most recent data show natural gas consumption is down by -12.4% through July compared with the same period last year. With lower consumption in the residential and commercial sectors as well, natural gas use in the electric power sector continues to serve as the only demand outlet for increased natural gas supplies’.
Natural gas has rebounded strongly in recent weeks. However, we believe price should remain at low level for some more time so as to improve the fundamentals.
US gas storage increased +69 bcf to 3658 bcf in the week ended October 2. The level is +15% above 5-year average. Although the number of gas rigs has dropped more than -50% from its peak in September 2008, recent data form Baker Hughes’s data showed building of rigs over the past few weeks. We believe drilling activities pick up because of rise in gas prices.
On the demand side, the EIA stated that ‘electric power sector continues to serve as the only demand outlet for increased natural gas supplies’. However, further increase in gas price suggests that gas will lose its place to coal and the last resort for the abundant gas storage will disappear. Therefore, we’d prefer gas price to fall more in coming month so that the demand/supply outlook can be rebalanced.
Precious Metals
Comex gold halted the 5-day rally by retreating -0.7% Friday. Settling at 1048.6, the December contract surged +4.4% over the week. Last week’s rally was impressive as gold has broke above the peak made in March 2008 after trading below it for one and a half years. The breach was decisive and price closed above it over the past 4 days.
The retreat last Friday was driven by USD’s strength amid speculations that the Fed will increase interest rate sooner than previously anticipated after Chairman Ben Bernanke’s speech. Investors probably seek more evidence about economic recovery after the RBA hiked its policy rate earlier in the week. In fact, Bernanke’s stance has not changed from what he said in WSJ in July. Meanwhile, a pullback or consolidation in gold price is warranted due to long liquidation. However, we remain bullish on gold price in the long term.
Major reasons driving gold’s rally are weak USD, inflation expectations and minimal sales from central banks.
The Fed has reduced the policy rate to 0-0.25% since late 2008, making it one of the countries offering the lowest funding rates. Last month, USD ‘took over’ Japanese yen as the funding currency for carry trades as the LIBOR rate for USD has dropped below than of yen. G-17′s non-intervening approach to USD’s depreciation and RBA’s beginning of the tightening cycle put further pressure on the greenback and the dollar index will likely resume its long-term downtrend soon.
Although global central banks have been emphasizing that inflation outlook is subdued, investors do not seem to hold the same view. US’ University of Michigan survey showed that consumers anticipated inflation will reach +2.2% in a year, significantly above the current level while UK’s inflation attitude survey by the BOE showed that consumers expected inflation to reach +2.4% in a year.
While IMF’s sales of 403 metric tons gold in coming years does remain as an overhang to gold price, we do not believe it will have any material impact to gold price. As we mentioned before, the sales will be carried out in 4-5 years at market price and the IMF will ensure it will not cause fluctuation in the gold market. IMF’s gold sales will be compensated by gold buying in central banks. Given the huge budget deficits in the US, global central banks have been diversifying away from USD. By August 19, gold sales under CBGA II were 149 metric tons, compared with 358.3 metric tons in 2007/08 and 475.8 metric tons in 2006/07.
Among the above drivers, USD’s weakness is the most prominent one is pushing gold high. In the chart below, the regression line for September data has higher slope than the one for June- August data. This suggests the dollar impact on gold has been stronger than before.
Silver amplified gold’s rally and became the best performer in the precious metal complex last week. In fact, silver price rallied +65% since the beginning of 2009, compared with +21% in gold. Certainly, it was to a large extent a catch-up play as silver plunged -26% while gold gained modestly in 2008. Although gold price has broken its 2008-high, silver, after the +9% rally last week, remained -17% below its record level.
Investor Jim Roger said that silver should have better growth prospect than gold in the precious metal complex as industrial demand on these metals will increase as global economy recovers.
At the end of 2008, gold-to-silver price rose above 80 as silver price plummeted. Recently, the ratio has fallen to around 60. We believe the ratio lies at a fair level now. However, as both gold and silver rallies have been driven by robust investment demands, deeper correction will probably be seen in silver than in gold as positioning in the former is more stretched.
Base Metals
The complex rebounded strongly last week as driven by falling USD, strong equity market as well as some industry specific good news. Alcoa, the largest US aluminum producer, surprisingly reported profits of $77M in 3Q09. Although the figure represented a decline of -33% from the same period last year, it exceeded market expectation of a loss. Concerning demand outlook, the company said the end-market has started to stabilize and demand is improving. Potential production disruptions also helped boost metal prices. BHP, the world’s largest miner has been facing potential strike as its Chilean copper mine as workers demanded for a wage raise. Over 20% of copper-mine output will be affected in 3-6 months.
China will release the preliminary trade data for September and we should see further decline in imports. This remains an overhang for base metal prices in the near-term.
Source: Oil n Gold
Commodities Strengthen as USD Slides
Crude oil price hovers around 70 in European morning as weakness in USD boosts demand for commodities.
Stock markets continue to advance after RBA’s rate hike Tuesday as this signaled economic recovery. In Asia, the MSCI Asia Pacific Index gained +1.2% while Japan’s Nikkei 225 Stock Average climbed +0.3% to 9832. In Australia, S&P/ASX 200 Index rose +1.6% to the highest level in a year as the number of employment surprisingly surged 40.6K in September after a decline of 24.6K in the previous month. The market had anticipated another month of drop by -9.7K.
In Europe, equity markets extend strength. UK’s FTSE 100 pares gain and is rising less than +1% after the Bank of England announced to keep the policy rate at 0.5% and the asset purchase program at 175B pounds. Although the decision came as expected, the statement that the scale of the program would ‘be kept under review’ added uncertainty to the outlook.
At the ECB meeting, which was held in Venice, the Governing Council of the ECB decided to keep its main refinancing rate for a 6th consecutive month at 1%, while the interest rates on the marginal lending facility and the deposit facility also stayed at 1.75% and 0.25% respectively. A press conference will be held at 1230 GMT.
While it’s also widely anticipated the policy rate will stay at 1% today and for an extended period of time as general price level remains subdued, recent rally in gold price has triggered attention the inflation outlook.
Gold price strengthens to as high as 1059.6 in European morning. The following chart showing inflation expectation has been rising in the Eurozone. At the same time, correlation between gold price and inflation expectation has increased significantly since April 2009. Will recent rally in gold price, as an implication to higher inflation expectation, trigger a more hawkish stance in ECB in coming meetings? We believe this is probable.
Others in the precious metal complex also rally with silver soaring +1.9% to 17.83, the highest level in 14 months. Platinum also jumps +1.4% to 1346.
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
Weekly Fundamental Outlook for Energies and Metals – Commodities Consolidate as Economic Outlook is Mixed
Most of the commodities gyrated within their recent trading range last week as the broad market outlook remained mixed.
After a sharp fall to the lower end of the range in the previous week, WTI crude oil price rebounded although there was not much good news from the energy market. Although investors found better weekly fuel consumption as an excuse to boost price, it faltered below 71.5 amid weaker-than-expected job data.
Gold price continued to be directed by USD’s movement which reluctantly trended lower. Although we remain bearish on the dollar’s long term outlook, global central bankers’ unwillingness on dollar’s depreciation should prevent a sharp decline in USD in the near-term.
Crude Oil
Crude oil price plunged to as low as 68.32 Friday as the US Labor Department reported disappointing employment data for September. Investors worried the pace of economic recovery will be delayed and thus took profits from long positions in oil. Although buying interest emerged afterward, WTI crude oil settled -1.2% at 69.95 during the day. On weekly basis, the benchmark contract gained +6%.
After plummeting to the lower end of recent trading range of 65-75, oil price recovered in the middle of the week although the US Energy Department reported larger-than-expected crude builds in the week ended September 25. Investors used the surprising draw in gasoline stockpile, lower-than-expected rise in distillate stockpiles and rise in fuel demand as reasons to bid up prices.
However, we retain out views that crude oil price will continue move range-bounded in coming weeks and occasional rise in demand does not alter the fact that fuel consumptions remain in depressed levels.
Gasoline demand rose to 9.126M bpd last week, representing increases of +3.8% on weekly basis and +4.5% on annual basis. However, Exxon’s CEO said that gasoline demand has already peaked in 2007 and will decline into the futures. In the US, oil product demand was 20M bpd in 2007 and should fall to about 17M bpd by 2020.
Distillate demand climbed to 3.409M bpd after slipping for 3 consecutive weeks. However, current consumption level remained -12.3% below the same period in 2008. 4 week average of 3.387M bpd last week was still down -11.1% from a year ago. The incentive for refiners to switch production from gasoline to distillate is low as heating oil inventory stayed at sky-high level and refinery margins were low.
On the supply side, OPEC members should adhere more strictly to quotas although they seemed to be content with current oil price. According to a survey by Bloomberg, OPEC, the organization controlling 40% of the world’s oil exports, produced 28.395M bpd in September, representing a -0.05M bpd drop from August. The 11 member countries bearing quotas produced 26.045M bpd in total during the month, representing a -0.01M bpd decline from August. However, the output was still +1.2M bpd about the assigned target.
Rex Tillerson, Exxon’s CEO, commented that the OPEC should be more disciplined in their productions. He said that the cartel had been ‘extraordinarily good’ at sticking to the quotas and the compliance level had reached ’82% which is very good for OPEC’. However, ‘the compliance has reduced to 65% now. When the price of oil got back above 70, some people cannot help themselves’.
For non-OPEC countries, Russia’s total production increased +1.7% yoy to 10.01M bpd in September. This has brought the nation’s production to a post-Soviet high and at +25% above Saudi Arabia’s production.
Although the IMF upgraded their economic forecasts, hard data suggested that recovery came in weaker than expected. Non-farm payrolls in the US declined -263K in September, compared with consensus of -187K, following a -201K decline in the previous month. Unemployment rate rose to 9.8% as expected. The government also revised downward their preliminary estimate of benchmark payrolls by -0.6% (70K per month) in the 12 months through March.
Natural Gas
Nymex gas for November delivery rebounded +5.65 to settle at 4.72 after plunging 7.7% Thursday amid record high storage in the US. Downward pressure at cash market and stock market weighed on front-month contracts.
The Energy Department reported that gas stockpile rose +64 bcf to 3589 in the week ended September 25. According to the government, at current price level, ‘working gas in storage set a new record high for natural gas inventories. Current inventories exceed the previous 15-year-high reported on the Weekly Natural Gas Storage Report (WNGSR) of 3545 bcf, and the all-time high of 3565 bcf reported in the October 2007 Natural Gas Monthly. New record levels were established in the West and Producing regions, exceeding the previous records of 482 bcf and 1126 bcf in the WNGSR, respectively. Meanwhile, the East region is only 86 bcf below its previous 15-year high level of 2041 bcf established on November 14 2008′.
We are bearish on gas price in the near-term as rising gas storage will drag down prices in the cash markets which in turns pressure on futures prices.
Precious Metals
The complex continued to trade on currency factors, with the more volatile metals (silver, platinum and palladium) being more affected by strength in the dollar.
On Friday, gold price sank to as low as 987 as the dollar strengthened to 3-week high against the euro and crude oil and base metal prices got hit. The benchmark contract managed to rebound and close above 1000. On weekly basis, the yellow metal added +1.3% following a -1.9% decline in the previous week.
Next week, gold price will probably remain bounded below the record high level of 1033.9. In fact, we expect the yellow metal to continue to struggling around the 1000 level in the near-term. While we will have a light calendar in the US next week, meetings in RBA, ECB and BOE will have strong impact on currency movement.
In the long-term, we stay bullish on gold price as we are bearish on USD given the huge deficit and monetary easing policy in the country. According to IMF, USD’s share in global currency reserves fell to 62.8% in 2Q09 from 65% in the previous quarter. Euro’s share, on the other hand, rose to 27.5% from 25.9%. This is evidence showing USD’s status as the dominant reserve currency is threatened. Gold will be a beneficiary should central bankers continue to diversify away from the dollar. In fact, decline in European central banks’ gold sales and increase in emerging market’s reserve diversification suggest that central banks will switch from net gold seller to buying in coming years.
Net speculative long position in Comex gold future declined from the peak level to 454.6K contracts last week which that for silver continued to edge higher, despite at a much slower pace. Silver price added +1.1% to 16.23 last week, underperforming gold.
Base Metals
Most base metals headed lower in the past week amid demand concerns. While doubts over a potential recovery in OECD demand persist, a seemingly pause in Chinese stockpiling was the major cause of surge in inventory. More importantly, national day holidays in China will last until October 8 and investors prefer to stay on the sideline during the period.
Huge build in inventory level has made copper the most worrisome in the complex. Copper stockpiles in LME warehouses rose for the 12th consecutive week and have expanded +34% since the week ended July 10. This probably explained why the LME copper for 3 months’ delivery has declined for 5 straight weeks after making a 2009-peak at 6535 on September 8.
In the near-term, metal prices will remain under pressure as investors need to see solid evidence of demand recovery. Moreover, weak Chinese imports will continue to weigh on prices.
Source: Oil n Gold
