Fundamentals

Oil Fully Retraces Early Morning Rally after Risk Appetite Stalls

North American Commodity Update

Commodities – Energy

Oil Fully Retraces Early Morning Rally after Risk Appetite Stalls

Crude Oil (WTI) -  $76.06  //  -$1.50 //  -1.93%

With guidance from equities markets, crude extended the bearish reversal that triggered at the beginning of the US session yesterday. From Monday’s peak, the active crude contract has tumbled more than 5 percent. Considering the general malaise in sentiment today, it isn’t difficult to connect this commodity’s declines to risk appetite. With the US markets scheduled to go offline after Wednesday’s close, oil traders are faced with a situation where volatility can be leveraged by liquidity conditions; but trend development will be exponentially more difficult to achieve. In contrast to trading conditions and underlying sentiment, there was more than enough fundamental interest to encourage bearish momentum and hold the energy bloc down while the Dow was enjoying a late, US-session rebound.

From the supply side, the American Petroleum Institute’s (API) inventory numbers set a discouraging precedence for tomorrow’s more market-moving Department of Energy figures. According to the industry group’s figures, crude stockpiles in the week through November 20th jumped 3.347 million barrels. This was a sharp increase; but its impact was somewhat offset by the 4.367 million barrel drop in the previous week. More reserved in its impact, gasoline stores grew 1.707 million barrels. With these numbers in mind, forecasts for Wednesday’s DoE numbers are already pointing towards further bloating. The Bloomberg forecast is calling for a 1.5 million barrel increase in crude holdings and meager 300,000 barrel expansion in gasoline. From supply to demand, the EIA (a section of the US Department of Energy) forecasted today a 7 percent drop in distillate fuel demand through the fourth quarter. Furthermore, the group said refinery capacity might already be running at 2 million barrels per day above the natural level of demand. Considering the macro economic data that was released today; these projections aren’t difficult to support. Both the US and Germany reported the second measurements for their respective 3Q growth readings. The US reading was revised down to a 2.8 percent pace of expansion with discouraging adjustments to personal consumption and private fixed capital investment. The headline Deutschland report would be pass unchanged but there were nonetheless notable declines in private consumption and stalled productivity for through the period. Speculative interests can take oil only so far. To sustain the pace of advance traders have become accustomed to, true demand will need to absorb excess supplies.

Commodities – Metals

Gold’s Steady Rally Hits another Wall but how long will this Break Last?

Spot Gold  -  $1,168.80  //  $2.70  // 0.23%

Spot gold kept its positive bearings Tuesday with a third consecutive bullish close (that brings the tally for the month up to 14 bullish sessions from a total of 17 active trading days). However, the momentum in today’s session was far more reserved than Monday’s  breakout. Of the three primary roles the metal plays, speculative asset was taking the lead. Most of the day would be spent on a path of chop similar to the pace the equities and FX markets were sustaining. The advance in sentiment that has been so consistent over the past eight months has certainly cooled in recent weeks; but traders are not yet giving up on a revival of the steadfast trend. As for speculative interests, the SPDR Gold Trust (the world’s largest gold-based ETF) grew 0.91 tons to 1,122.37 tons today; while the iShares Gold Trust rose 29,515 ounces to 2.598 million ounces. Increasing holdings on these financial products is natural at record highs; but whether or not this is a leading indicator of actual demand remains to be seen. As for its other roles, the US dollar was looking at restrained volatility for the day and ultimately ended the day in the red. As an inflation hedge, the second reading of 3Q GDP was revised down (in line with expectations) – posing a restrained threat to immediate price pressures.

Spot Silver  -  $18.52  //  -$0.03  //  -0.17%

Silver solidified its $19 to $18 dollar range Tuesday with its fourth consecutive bearish close (on a spot basis). However, a consideration of ranges and daily closes, the metal has essentially passed the past six sessions without a sense of general direction. For speculative interests, iShares Silver Trust reported a 135.98 ton increase in holdings to 9,252 tons while ETF Securities reported its own inventory was increased 3 percent to 22.705 million ounces.

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