The Bull trend in Commodities: Crude Oil and Gold

I believe it is going to be hard to change the Bull trend in commodities in here, but that does not mean that we could/will see wide swings in the market.

As the Western economies improve and the EU resolves the debt issues the developed Nations will begin to grow and growth means inflation and the market will focus on increasing demand.

Global tensions are rising now once again. It is interesting the EU, when it came to placing sanctions on Iran, faded.

Ok, the EU signed on to some sanctions but it did not sign on to an agreement, proposed by France and backed by the US, Germany and the Netherlands, to proceed with a full embargo on imports of Iranian Crude Oil.

Instead, Catherine Ashton, the EU foreign policy chief, said that any consideration of steps against Iran's energy sector would go to the technical experts.

There are 2 Key arguments against a European embargo: It would disproportionately harm the EU's weakest economies, such as Spain and Greece, and Iran would simply ferret out other markets in Europe is shut off.

Both are valid points. An embargo on Iranian Crude Oil would put pressure on Oil prices in Europe. Greece has recently stepped up its purchases of Iranian Crude Oil because other suppliers are leery of the Country's credit risk; shaky Spain and Italy use much more of it than say, France. Iran accounts for 5.7% of Europe's Crude Oil imports.

Crude Oil is a Global commodity, the European prices are affected by any number of variables.

For example: the November 30 move by the US Fed and other central banks to ease borrowing costs for financial firms drove Brent Crude prices to a 2-week high.
One analyst said, An embargo on Iran can be co-ordinated with increases from other producers, and Europe already stands to see increased imports as Libya ramps up production after the ouster of Muammar Qaddafi. The costs of an embargo can be borne. As for Iran finding other buyers, more than half its exports already go to China, India and Japan, and no country likes to be too dependent on any single producer. If Europe were to sign on to an embargo, it is not unreasonable to think Japan would feel that much more pressure to join its Western political and military allies. An embargo need not be Global to put pressure on the target. We have seen this already with Iran. Industry insiders suspect that it is now or will soon offer its remaining customers Crude Oil price discounts to stay loyal, in part because of measures the US and UK and others have taken against Iranian financial institutions that make processing purchases more difficult.

Another analyst reports, China, the biggest buyer of Iranian Crude Oil, stepped in to warn against emotionally charged actions that might aggravate the row over the storming of Britain's embassy in Tehran. Top US officials said they wanted to sanction Iran's central bank in a calibrated manner to avoid roiling Crude Oil markets or antagonizing allies. Their approach clashes with that of U lawmakers pushing for faster action. In Iran, diplomats said protesters had devastated parts of the British embassy complex in Tehran. A Commander in an Iranian militia which joined Tuesday's ransacking said he was tired of decades of British plotting against Iran. EU foreign ministers meeting in Brussels said Iran's energy, financial and transport sectors might be targeted in response to a report from the UN nuclear watchdog body which suggested Iran has worked on designing an Atom Bomb. They added 180 Iranian people and entities to a blacklist that imposes asset freezes and travel bans on those involved in the nuclear work, which Tehran says is for peaceful purposes. But they appeared to postpone decisions on a ban on Crude Oil imports.

China wants calm because they desperately need Crude Oil, and the rising demand for Crude Oil is allowing Saudi Arabia, the World's biggest exporter, to sell its lowest-grade Crude Oil at record premiums to buyers in Asia.

Saudi Arabian Oil Co., the state-owned producer, is likely to offer Arab Heavy Crude Oil for January at 0.25 bbl more than benchmark Oman and Dubai Crude when prices are announced next week, + 0.50 from December, according to the median estimate of 9 refiners surveyed.

Arab Medium may be set at a premium of 1.60, or 0.40 higher. That will be a record for the 2 grades and the 1st time Arab Heavy is sold at a higher price than its marker.

Still the risk to Crude Oil is very high.

Dow Jones reports, The Arab Spring and the possibility of a Double-Dip recession pose significant risks to the World's ability to have secure energy supplies and mitigate climate change, the chief economist of the International Energy Agency said Friday. Emissions of carbon dioxide are reaching new highs, but a recession would hamper efforts to prevent climate change, Fatih Birol said at a press briefing in Budapest. The IEA said last month that if the world doesn't adopted significant new measures to reduce CO2 emissions by Y 2017, dangerous climate change will be impossible to prevent. Birol also warned that the political turmoil of the Arab Spring poses a major risk to Crude Oil production in the Middle East and North Africa. There is a worrying concentration of remaining oil reserves in these risky countries, he said. Oil prices are set to remain high, he said.

Gold is also very Bullish!

Dow Jones reports, The Bank of Korea's move to boost its Gold reserves last month is yet another Bullish flag for the Bullion market and should help to provide underlying support to world Gold prices. South Korea's central bank bought 15 metric tons of Gold from the London Gold market in several lots last month, taking its total reserves to 54.4 tons as of the end of November. Stay tuned...

Paul A. Ebeling, Jnr.


Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.