Trading below 73, WTI crude oil remains soft in Asian session Monday. The selloff in January (-8%) is carried to February and increased the likelihood of a decline in the first quarter. While demand outlook in the US worries the market, strength in USD also weighs on commodities.
The 2 manufacturing PMI readings in China showed mixed results but aroused the same response from investors - selling risky assets amid worries about China tightening. The government PMI showed a drop to 55.8 in January from 56.6 in the prior month. The slide might have been affected by cold weather and snowstorm. On the other hand, the index by HSBC showed a seasonally adjusted improvement to 57.4 during the month from 56.1 in December. Export sales grew at a 'near-record rate'. Investors speculate the government will speed up tightening as manufacturing activities remained heated.
China will probably take over the US' status as the world's largest oil consumer. Saudi Aramco, the world's biggest oil producer, said is it exporting about 1M bpd of crude to China, more than to the US. The CEO, Khalid al-Faith, said the company will focus on China in coming years. According to Bloomberg's survey, OPEC's oil production declined for the first time in 10 months to 28.955 mmb in January. 11 out of 12 members in the cartel agreed to cut production in late 2008 in order to rescue the sharp plunge in oil price amid the worst economic crisis since World War II. However, as oil prices recovered in 1Q09, most producers began to increase production and compliance deteriorated from 80% in the beginning of last year to around 60% in December.
While resistance-turned-support at 1072 should temporarily bolster price, gold's near-term outlook is still weak in the face of stronger dollar. USD closed at 1.3861 against the euro, the highest level since July 2009, as Greek fiscal problems triggered selloff in the single currency.
We are having a busy calendar this week. Apart from the monthly manufacturing indices, the RBA (Tuesday), the ECB (Thursday) and the BOE (Thursday) will meet for monetary decisions. On Friday, the US will release the January employment report. Analysts currently anticipate +20K addition of payrolls during the month.
Commitments of Traders:
Crude Oil: Net speculative long positions plummeted -34.8K to 99.62Kcontracts in the week ended January 26. During the week, US President Obama's bank proposal to curb risk-taking increased risk aversion and investors dumped commodities and shed to safe assets. Further decline in net longs is possible in the coming week as strength in USD reduces demand for commodities
Natural Gas: Net speculative short positions lowered to 168.7K contracts despite decline in gas price
Gold: Net speculative long positions slipped further to 211.9K contracts. USD rallied against major currencies amid concerns on sovereign default risk. Due to traditional inverse correlation between gold and USD, pressure on gold as the dollar strengthened is inevitable
Silver: Net speculative long positions in silver dipped further to 370.7K last week. Obama's bank proposal and Greece's deficit problem triggered selloffs in risky assets. Moreover, fears of tightening in China weighed on metals with industrial uses
Platinum: Net longs retreated further to 18.5K contracts as platinum price plunged in tandem with others in the commodity sector. Although net longs in futures dropped, capitals have seen flowing into the newly launched US platinum ETF. In the long-term, strong fundamentals in platinum should drive investments higher