Fundamentals

Crude Exhibits a Constrained Decline Despite the IEA’s Reduced Forecast for Long-Term Demand

North American Commodity Update

Commodities – Energy

Crude Exhibits a Constrained Decline Despite the IEA’s Reduced Forecast for Long-Term Demand

Crude Oil (WTI) -  $78.70  //  -$0.73 //  -0.92%

Speculative interests and supply/demand fundamentals were working to keep crude anchored through Tuesday’s session. The key energy product carved a broader range than yesterday’s but would ultimately head into the US close unchanged. For short-term traders, the stability in equities and the dollar prompted little recourse from the commodity. However, many of the market’s benchmarks for yield-appetite are on the verge of yearly, bull highs. This is a perilous are to lose momentum.

Fundamental traders would still find their fill for long-term forecasts (and perhaps a few swing traders were able to take advantage of the intraday activity) despite the small change on the session. Keeping track of the first significant storm for the US for the 2009 hurricane season, Ida was downgraded to a Tropical Depression as it made landfall in Alabama.  Nonetheless, the precautions taken to avoid the storm has reportedly left 43 percent of US oil production in the Gulf of Mexico idled according to a government report released today. Approximately 28 percent of natural gas production was taken off the tap. The passing of the storm would not have as weighty a bearish tinge for supply forecasts however as the International Energy Agency’s World (IEA) Economic Outlook report. The group lowered its forecasts for crude demand through 2030. According to the group’s projections, global demand will rise 1 percent a year to 105 million barrels per day through 2030 from an 85 million barrel pace last year.  Initially expected to hit 106 million barrels per day, the lasting effects of the economic recession and government efforts to invest in alternative energies is expected to curb consumption. Furthermore, what growth in demand is expected is seen coming from developing countries. At the same time, OPEC is expected to take a greater responsibility for filling this demand by fulfilling 52 percent of the world’s energy appetite from 44 percent last year.

Commodities – Metals

Steady Levels of Risk Appetite Lead to Stable Gold and Silver Price Action

Spot Gold  -  $1,105.58 //  $1.78  //  0.16%

Speculation is in full control of gold; and where there is low volatility in the underlying current in sentiment, there is naturally a stable market for the precious metals. As an instrument of speculative return, the commodity is seeing the same circumstances as the Dow Jones Industrial Average. The stock index was little changed on the day but would nonetheless close the day at a fresh 13-month high. In similar form, spot gold carved out its second smallest range in three weeks and closed at a new record high.  Looking to the security’s appeal as an inflation hedge, the iShare’s TIPS index hit a 14-month high before falling back for a bearish close. Speculation is clearly just as lively with the fundamental forecast for price pressures as it is for the precious metal as few economies currently see notable price growth and officials do not expect that to change in the immediate future. As for the buoyancy linked to expectations for central bank demand for gold (as a reserve alternative to the dollar) steadily rising; speculation on these grounds will need confirmation soon or lose its influence. The ECB reported gold and gold receivables fell 20 million euros this past week; but this hardly holds same influence as the massive deal by the Indian Central Bank last week.

Spot Silver  -  $17.34  //  -$0.25  //  -1.42%

Silver was more active than gold but overall less volatile than crude through Tuesday’s session. The commodity would post its largest daily loss since the month began; but development of direction was not necessarily indicative of a significant change in underlying volatility. With risk appetite otherwise stable and the US dollar holding near its own 15-month lows, there was little to encourage trend development for this market alone. In the news, the iShares Silver Trust holdings were reportedly unchanged at 8,740.15 tons for the day – the fourth consecutive session that stockpiles were unchanged.

Written by John Kicklighter, Strategist
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