Fundamentals, Oil & Gold

Crude Oil up after US and Chinese Manufacturing Rise, Dollar Falls

Commodities – Energy

Crude Oil up after US and Chinese Manufacturing Rise, Dollar Falls

Crude Oil (WTI) -  $77.26  //  $0.26  //  0.34%

The slow and progressive bearish reversal in crude has hit another snag. A hearty round of fundamental support Monday morning would join a general appreciation in risk appetite to bolster the popular commodity. Investor sentiment began the new week in the red. As a proxy, Asian equities gapped lower on the open and failed to recovery most of the lost ground. However, by the time European and North American markets came online, the scales would tip back in the favor of the bulls – and the bullish shift would clearly benefit the commodity block. Yet, even as the early hours stock rally in the US session started retracing into the afternoon, crude’s gains proved more ‘sticky.’ Economic releases this morning have stepped in to help stabilize oil’s gains. Both China and the US – the world’s largest energy consumers – reported a bigger than expected increase in manufacturing through October. According to the data, Chinese factory activity hit an 18-year high despite downticks in output and new orders. For the US, activity climbed to its highest level since April of 2006 with notable contributions from actual production and new export orders.

Outside of general sentiment and macro influences, supply-and-demand news was remarkable but ultimately conflicting. From the Middle East, the United Arab Emirates’ (the fourth largest oil producer from OPEC) Abu Dhabi National Oil Co. reportedly raised its selling price through October by as much as 7.9 percent from the same period a year ago. Much of this supply is destined for Asia. In contrast, Russia (the world’s largest energy producer) reported national fuel production rose 1.8 percent over the year and was unchanged from September at its post-Soviet Union dissolution high of 10.04 million barrels a day. Statistics Canada reported much later that output of crude and equivalent hydrocarbons fell 6.7 percent in the year through August; though crude exports were up 1.4 percent over the same period.

Commodities – Metals

Gold and Silver Eye their Respective Highs Even as Speculative Interest Starts to Wane

Spot Gold  -  $1,053.50 //  $0.81  //  0.77%

Gold traders were concerned about one thing Monday: risk appetite. Sentiment – and price – was relatively flat through the early Asian session but started to take a bullish bias when the European market injected its liquidity into the market. For guidance on direction and pace, commodity traders found a good torchbearer in the standard US dollar. The currency wasn’t developing a straight decline through the early session hours, but the bias was unmistakable in the more liquid and risk sensitive high-yield pairs. Looking beyond this all-consuming driver, however, the fundamental currents were moving. Commentary from the ECB’s primary money market operations advisor, Paul Mercier, highlighted a potential long-term shift in central bank interest. The official said he thinks it is unlikely that Japan, China and the broader Asian session would likely stabilize if not increase their gold reserves over the coming years. This speaks to the belief that the world will slowly move away from the greenback as a primary reserve and perhaps even move out of currencies in the short-term to avoid the high level of volatility. Looking back at the COT position figures through October 27th (released this past Friday), noncommercial interest fell a second week from its recent high to a net 241,777 long contracts while commercial holdings rose from its recent record low to a net 283,479 short contracts. In other news, SPDR Gold Trust holdings fell 0.91 tons to 1,103,52 as of this past Friday, extending a pullback from record highs.

Spot Silver  -  $16.36  //  $0.05  //  0.28%

Silver was establishing a similar trend and pace to gold.  The release of the early morning US data would give an extra amplification to the already developed advance. However, the mid-session stabilization shows that quick bursts in short-term interest are consistently met with profit taking without a clear, underlying driver to provide a sustainable bid for risky and expensive assets. Looking at the CFTC’s COT data from this past Friday, noncommercial interest has similarly fallen for the second week from its 15 month high to 44,140 net long contracts. On the other hand, speculative long holdings hit its highest levels since the week ending August 1st of last year to 20,222.

-Written by John Kicklighter, Strategist
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