Oil price eases in Asian morning as tensions between the 2 oil giants, Iran and Iraq, relieved after the former withdrew from an oil well in East Maysan. A light economic calendar today also bounds oil price in range. Currently trading at 73.3, WTI crude for January delivery, to be expired today, has little change from last Friday.

Iranian troops crossed the Iraqi border last week and occupied around the oil well in the al-Fakah region. The new drove up crude oil price to as high as 74.69 last Friday as the conflict may lead to oil export disruption. However, earlier today, the 2 countries discussed about the issue and tried developing 'bilateral ties and paving ground for strengthening cooperation'.

Iran and Iraq are the world's second and third largest oil producers. Average productions in the first 9 months of 2009 were 4.26M bpd and 2.39M bpd respectively. The 2 countries engaged in a war for 8 years in the 1980s (September 1980 to August 1988) due to border and political disputes. The war eventually ended in 1988 with both parties accepted the terms under Resolution 598 issued by the United Nation.

The Iraqi government has been striving to re-develop the oil industry in the country and has been negotiating cooperation with international oil companies. In June, the country held the first auction and only a BP-CNPC consortium was awarded contract which allowed the group to explore the Rumalia field in returned for a fee of $2/bbl produced. After that, the government also awarded the ENI consortium a contract to develop Zubair field and the Exxon Mobil consortium to develop the West Qurna -1 field. The second auction was held on December 11 and a total of 10 unexplored oil and gas field, totaling over 35B barrels of proven reserves will be auctioned. According to the government, 44 oil companies around the world will participate in the bidding process.

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Gold price rebounds for the second day as USD retreats and low price attracts bargain hunters. Currently trading at 1117, the benchmark contract for gold recovers +1.9% from the 1.5-month low of 1095.7 made last Thursday. The yellow metal has corrected almost -10% after making a record high at 1227.5 in Early December.

While the Fed Chairman Ben Bernanke reinforced in the FOMC meeting that inflation will remain subdued as 'substantial resource slack likely to continue to dampen cost', the market is factoring in a different prospect. The 10-year TIPS breakeven rate surged to 2.27% last Thursday, the highest since August 2008. This suggests investors are gaining confidence that the US has been out of woods from deflation and are anticipating inflation.

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Committments of Traders:

  •  Crude Oil: Net speculative long positions retreated more than 10K to 53.2K contracts as crude oil price met severe selloff on Dubai and Greece credit risks
  • Natural Gas: Net speculative short positions dropped for the second week as decline in gas inventory lifted prices. Traders unwound short positions and increased long positions in anticipations that further rally in price will be seen as a result of further draw
  • Gold: Net longs recovered modestly to 256K last week. The positions will continue fluctuating around record high levels in coming weeks
  • Silver: Net long positions declined for the 4rd consecutive weeks due to correction in price and uncertain development in the macro economy
  • Platinum: Net long positions declined for the 4rd consecutive weeks despite increase in price. Further fell in net longs is expected as platinum price continues to plunge in tandem with others in the precious metal complex

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