Commodities - Energy
Will Crude Salvage its Bullish Drive and Extend the Strongest Rally Since July?
Crude Oil (WTI) - $77.86 // $0.28 // 0.36%
The bullish inventory data from yesterday may have helped save crude’s most promising rally since July. While other risk-sensitive markets were on the lam Thursday thanks to concerns over earnings data, oil was able to forge ahead after the Energy Department reported gas stocks dropped 5.2 million barrels and distillate fuels fell 1.1 million barrels. However, a seventh consecutive advance through the end of the week is not yet secured. Through the morning, the disappointing earnings data from Bank of America and GE curbed investor sentiment and cooled the outlook for production and growth. However, there was a notable tempering of the morning’s bearish convictions heading into the close, pointing to a close for the week well into the green.
As for crude-specific event risk over the past 12 hours, the only influential news came from a press release by the Movement for Emancipation of the Niger Delta saying they would resume attacks on production facilities. OPEC Secretary General El-Badri said in a statement that he believes unrest in the region would end in the “next few months.” His comments would also refer to quota compliance among OPEC members. The 4.2 million barrel per day cut agreed upon last year is now seeing 62 percent compliance. The oligopoly, he went on to say, could not invest in projects with the average price of crude under $60 per barrel. There is clear glut of supply in the system and demand has been tempered by the global recession; and producers are trying to maintain price stability. Yet, despite the abundance of inventories, the market has maintained its current trend. Looking ahead to next week, the market will look to investor sentiment as a guide to price action in crude - though supply-and-demand fundamentals will be constantly in the background to accelerate any reversals.
Commodities - Metals
Gold and Silver Recovery from their Lows as Risk Aversion Eases into Friday’s Close
Gold - $1052.13 // $1.93 // 0.18%
Spot gold hit its lowest level in a week early Friday before recovering its footing at a now conspicuous level of support at $1,043. Fundamental activity for the day was centered on investor sentiment. Equities were on the decline through most of the Asian and European session, pulling the speculatively-tuned commodity lower as well. When US liquidity came on line, investors absorbed news of a $1 billion net loss from Bank of America. While the US dollar was climbing after this announcement, so was gold. Historically, this commodity is used as a bulwark from financial uncertainty; and its roll would prove influential enough to offset the currency’s safe haven status. Heading into the weekend, we have to reflect on the precious metal’s performance to this point. The weekly close is the highest on record and the general, bull trend is still intact. While there will still be interest in buying the commodity going forward, demand will almost certainly be diminished by the sheer cost. For consumers, demand from India (typically high in the final three months of the year starting with this weekend’s Diwali holiday) will be further be diminished by the lingering impact of the global recession. For speculators, the prospect for capital returns is far smaller than the potential for loss at such heights. A modest correction could easily encourage an aggressive wave of profit taking.
Silver - $17.42 // $0.06 // 0.35%
Silver was once again sporting the same volatility and bearing as its pricier counterpart. Fundamental interest was based in the extended decline in equities through the first half of the day, which slowly eased with the tempered rebound through US trading. The fact that this commodity was able to hold its ground better (and return to positive territory more readily) than equities is testament to the underlying strength of risk appetite and the dual role of safe haven this physical commodity enjoys over intangible assets like the US dollar and even Treasuries.
-Written by John Kicklighter, CFDTrading Research
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