A Drop in Gas Inventories Extends Crude Oil's Rally to a Sixth Session

Published October 15th, 2009 - 10:27 GMT

Despite the pull back in other commodities and speculative-based asset classes, crude put in for a sixth consecutive advance. This is the best trend for the market since the period through August 6th.

North American Commodity Update, Last Updated 10/15/2009 2:24 PM EST (GMT = EDT +4:00)

Commodities - Energy

A Drop in Gas Inventories Extends Crude Oil’s Rally to a Sixth Session

Crude Oil (WTI) - $75.75 // $0.57 // 0.75%
Despite the pull back in other commodities and speculative-based asset classes, crude put in for a sixth consecutive advance. This is the best trend for the market since the period through August 6th. Comparing the general level of sentiment across the markets towards speculative assets today, oil’s advance seems out of place. However, the pullback in risk appetite under most circumstances was limited; and the energy market was further responding to its own fundamentals. The delayed Energy Information Administration’s (EIA) report on inventories diverged somewhat from the API report released late yesterday. Whereas the API reported crude stocks were down 172,000 barrels; the Energy Department reported its measure was up 0.1 percent or 334,000 barrels. Yet, gasoline inventory unexpectedly plunged 5.23 million barrels (2.44 percent) last week – the biggest drop since 2008.

Demand heading into the winter (despite forecasts for one of the coldest seasons in years) seems to be relatively weak. Though distillate inventories fell 1.1 million barrels in the week through October 9th, they are still near 26-year highs. Furthermore, refineries are operating at 80.9 percent capacity, the lowest since April. Some producers have already started their response to the glut in supply by cutting shipments. OPEC is expected to ship 22.58 million barrels per day through the four weeks ending on October 31st for a cut of 0.4 percent. They are currently following a compliance rate of 62 percent.

Commodities - Metals

Gold and Silver See a Sharp Correction as Risk Appetite is Tempered

Gold - $1048.10 // -$14.30 // -1.34%
The stalled advance in equities and temporary bounce in the dollar was enough to send gold tumbling mid-day in the Asian session. The steady decline that followed was marked by significant volatility and intraday low made for the worst decline since September 24th. Such a pullback was inevitable though considering the slow, steady congestion that was pushing the commodity consistently to new record highs was finding very restrained support from risk appetite. At these heights, it is hard to deny from a fundamental perspective that gold is oversold. Both arguments for the precious metal acting as a stand in for the US dollar and acting as an inflation hedge come with flaws. Price pressures are none-existent and policy makers have said that inflation will likely hold below target for the medium-term. As for the greenback alternative, we have seen risk appetite send capital to all asset classes. With gold already at record highs and no source of return outside capital gains, the potential for profit is limited. Another sense of gold nearing extremes, the SPDR Gold Trust (the largest gold ETF) was unchanged for a sixth session at 1.109 metric tons. What’s more, last week’s COT report showed net long positions held by speculators was at a record high of 239,668. A more meaningful slump could be ahead.

Silver - $17.36 // -$0.53 // -3.00%
Like its more costly counterpart, silver was sharply lower on the morning. However, gold’s many roles (dollar alternative, inflation hedge, speculative asset) was able to dampen its own decline; whereas silver was suffering a much steeper contraction. In fact, silver was looking at this biggest loss among the precious metals. Sentiment was the primary driver for this metal. While the turn in underlying risk appetite has not been so severe as this price action would suggest, the advance beforehand has encouraged profit taking on the investment that does not naturally bear yield.

-Written by John Kicklighter, CFDTrading Research
Questions/Comments about this article? Send them to jkicklighter@dailyfx.com

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