Oil prices gained modestly, in tandem with the advance in stock markets, amid speculations that the Fed will signal stimulus measures later this week. While reports that tensions in Libya are coming to an end have sent Brent crude oil prices lower, losses were pared and the front-month contract ended the day almost flat. Some market participants were less pessimistic than others and expected it would take quite some time for Libya's oil production capacity to be back to pre-crisis level.
It is believed that the rebels are now controlling major oil facilities. However, operations will likely remain suspended during the power vacuum period after the Qaddafi regime collapsed. According to Ivan Gogolev, a spokesman of Russia's Gazprom International said that 'it is important that the political situation should stabilize first and the legitimate leadership be established and ministers appointed...Only then will we assess when we can come back, but it is understandable that we want to be back'. Eni Spa also evacuated their staff as the turmoil erupted in February. The company believed it will take a year for the company to get back to full capacity.
Moreover, it takes a long to repair facilities and fields that were damaged during the 6-month war. For instance, production in the Sarir oil field had been disrupted after a pumping station between the field and the port of Marsa El-Hariga was damaged in April by Qaddafi's army. Although the area is under control of the opposition forces, operation in the field has not been resumed, signaling the difficulties in repairing oil facilities from damage and resuming production.
Gold retreated to 1872/75 after surging to a new record high of 1917.9 earlier in the day. Profit-taking was the main reason for the decline. In China, the Shanghai Gold Exchange announced it will increase the trade margin requirement for its gold forward contracts to 12% from 11%, effective August 25. The exchange said the purpose of raising the requirement for a second time in a month is to prevent transaction risks, maintain market stability and protect investors' interests. More risk controls will be adopted should volatility in gold prices increase further.
On the macro front, Eurozone's preliminary PMI data dropped but came in better than expectations. Manufacturing PMI slipped to 49.7 in August from 50.4 a month ago. The market had anticipated a bigger fall to 49.5. Services PMI dipped -0.1 point to 51.5 in August, compared with consensus of 50.9. Sentiment, however, slumped in August. ZEW's survery showed that Eurozone's economic sentiment tumbled to -40 in August from -7 a month ago. The market had expected a pickup to -6.2. The index for Germany alone plunged to -37.6 from -15.1. Consensus was a drop to -26.