Commodity prices extend weakness Monday as the USD rebound strongly. WTI crude oil price breaks below the lower end of 75-82 trading range while Comex gold tumbles to as low as 1140. Selloffs in European equities weigh on prices further. Investors speculate the Fed will speed up the pace of rate hike as employment situation in the US has improved a lot. Futures traders see a 4.4% possibility that the Fed may lift the Fed funds rate to 0.5% in January, compared with a 1.8% probability a week ago.
Currently trading at 74.85, the benchmark contract for crude oil plunged to as low as 74.56 earlier in the day. Its fall is partly a kneejerk reaction as USD advances. Rise in USD reduces the appeal of hedge using commodities.
Comments from OPEC members regarding oil price also exert pressure. Saudi Arabian Oil Minister Ali al-Naimi said that 'inventories are coming down, the price is perfect, and all investors, consumers, producers are all very happy...the market is stable right now, volatility is at minimum, everybody is happy with the price, it is in the right range. There is nothing to worry about', suggesting the organization controlling the world's 40% oil is not going to do anything on production in the upcoming meeting in December. Kuwaiti Oil Minister Sheikh Ahmed Al-Abdullah Al-Sabah also said he was 'comfortable' with oil prices of 70 -80.
Gold also dives amid recovery in USD. The yellow metal does work well in low interest rate environment. Speculations for Fed's rate hike when inflation remains subdued should trigger selloff. Moreover, profit-taking is inevitable as price has rallied relentlessly for a few months.
Commitments of Traders
- Crude Oil: Net speculative long positions increased slightly to 76.4K after declining for 4 weeks. Despite volatile trading, crude oil price remained its sideways movement within a range of 75 and 82 (expect for the brief slump to 72.39 after Dubai announcing deferral repayment of debts). We anticipate price will continue hovering within such a range for the rest of the month. Therefore, we also do not expect to see much breakthrough of net longs from current level
- Natural Gas: Net speculative short positions increased to 161K last week amid worries on ample gas storage. Although the pace of stockbuilds has moderated in recent week, total gas storage remained at record high level. Moreover, gas storage normally declines in the fourth quarter but exception was seen this year as weather in the Northern hemisphere is warmer than expected. The situation makes investors worry about demand outlook
- Gold: Net longs pulled back modestly after rallying the record high level of 262K last week. Gold's momentum has been strong since breaking 2008-high at 1033.9 in October. Every selloff has been treated as correction of previous rally without affecting long-term uptrend. With weakness in USD, low real interest rates and robust investment demand. Gold's uptrend should continue at least until mid -2010
- Silver: Similar to gold, net longs in silver retreated following the surge last week. Price in movement in silver has been more erratic than gold as the white metal in not purely 'precious' metal. Its huge industrial applications
- Platinum: Net speculative long positions increased to 22.5K as boosted by strong auto sales.