Fundamentals

Oil Tumbles from its Prominent Technical Ceiling Despite an Upgrade to Growth

North American Commodity Update

Commodities – Energy

Oil Tumbles from its Prominent Technical Ceiling Despite an Upgrade to Growth

Crude Oil (WTI) -  $77.55  //  -$2.03 //  -2.55%

The sharper-than-expected drop in yesterday’s US Department of Energy inventory numbers clearly had a limited impact on expectations for working down bloated supplies. Not only would the data fail to drive oil much further than the session’s highs, but it would more critically fail to breach a descending trend channel that has survived at least five notable swings over the past month. Weighing traditional fundamental influences versus speculative trends; it is an easy conclusion that risk aversion was the primary driver for the commodity today. Gauging sentiment, the Dow Jones Industrial Average fell for the first time in five sessions while the 10-year Treasury note reversed its first decline in 10 days. The US dollar (the primary instrument for pricing crude) is perhaps the best barometer for both risk and the natural resource. The world’s most liquid currency advanced through today’s session but overall, the greenback is carving out a very clear congestion pattern near its lowest levels in 15 months.

If supply-and-demand fundamentals were in charge today, the day would have likely turned out much different. Top macro event risk through the morning was the Organization for Economic Co-operation and Development’s (OECD) forecast for growth. A significant upgrade to this past June’s 0.7 percent projection for expansion through 2010, the new outlook has an outlook for 1.9 percent growth. Naturally, the upgrade to activity would translate into a rise in energy demand. Other news events crossing the wires through the day however offset positive demand forecasts with bearish supply readings. Nigerian Oil Minister Rilwanu Lukman suggested OPEC members generally wanted higher quotas and December’s meeting would not likely end in any cuts to output. Adding weight to this measured outlook, Oil Movements reported tanker shipments from OPEC through the four weeks ending on December 5 would average 22.78 million barrels a day – generally in line with the recent average.

Commodities – Metals

Gold Retraces its Early Morning Losses as Demand and Sentiment Forecasts Tilt Higher

Spot Gold  -  $1,144.70  //  -$0.80  // – 0.07%

Gold spent most of Thursday’s session in the read; but a rebound that began in the US afternoon hours prevented the commodity from what was at one point the sharpest decline since October 26th. Like most of the other benchmarks for the various asset classes, gold was taking its cues from risk appetite. However, the commodity’s recovery would be much steeper than the dollar’s pull back over the same period. The additional strength for the metal likely came through fundamental influences. The World Gold Council’s third quarter report on global demand supports a healthy bid for the commodity in the months ahead. According to the report, total demand through the three-month period rose 15 percent from the second quarter to 800.3 tons. Of that interest, ETF-based interest actually contracted slightly; while consumer, industrial and jewelry demand all rose.  In other news, European central banks reportedly sold 1.5 tons which leaves the central bank with 398.5 tons available for sales according to a new accord that caps sales among the regional banks at $400 tons a year through September 2014. According to the WGC’s (who reported the sale) figures, sales through the year ending last September were its weakest at 155 tons since the agreement went into effect back in 1999.

Spot Silver  -  $18.50  //  -$0.07  //  -0.37%

Spot silver kept its close correlation to gold through Thursday’s session. A steady and aggressive decline through the Asian and European hours was almost completely retraced through the close of the US markets. Nonetheless, the slight decline for the day would be the first down day for the commodity in five. It is interesting however to note that volume on the active futures contract has held at the elevated levels seen over the past three days – an interesting outcome considering the market has ultimately progressed little over the period.  In other news, the iShares Silver Trust (the world’s largest), increase its holds by 67.23 tons to 9,021.21 tons.

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Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com