USD's Safe Haven Appeal Returns
Failing to re-test 80, WTI crude oil retreats to 78.8 in European morning. Stock markets fall while USD strengthens as investors' risk appetite diminished. Today's focus is on US' durable goods orders and new home sales, followed by US inventory data.
While crude oil price is trading within narrow range with a soft tone, oil product cracks rallied rapidly. Front end RBOB gasoline crack spreads surged for the third consecutive day and settled at 7.41 yesterday, the highest level since early September. Gasoline crack rallied +38% in past 2 days while heating oil crack rose only +1.3% to 6.764. Since mid-September, crack spread of distillate has been higher than that of gasoline. However, the situation reversed in recent days as gasoline price has traded again at a premium to distillate price. We believe the phenomenon is justified by fundamentals.
US durable goods probably rebounded +1% mom in September after a sharp fall of -2.6% in the prior month. Concerning the transportation category Boeing orders dropped to 20 from 32 but the decline should have been offset by rising auto and defense orders. Excluding transpiration, the reading is expected to have climbed +0.8%. New home sales continued to increase in September as driven by high levels of affordability and first time buyers' tax credits. The market forecast new home sales increased +2.6% mom to 440K.
Gold price remains weak as USD pares losses. Comex gold continues to trade around 1-month low as it loses appeal as an alternative investment decreases amid USD's strength. Others in the precious metal complex also decline and corrections should remain in progress in the near-term.
Concerning PGMs, Aquarius Platinum reported that its platinum production dropped -32% yoy to 51K oz in the September quarter while palladium production slid -28% yoy to 28K oz. As PGM output will remain constrained in South Africa this year, the supply/demand condition might be in slight deficit this year should auto demand recovers faster than expected. This should be supportive to PGM prices.