Currently trading at 81.3, WTI crude oil is going to record the 4th consecutive week of gains as driven mainly by weakness in USD and strength in stock markets. Although the market has been increasingly confident that energy demand will improve as economy recovers, South Korea reported decline in oil product shipment in September. Moreover, OPEC's price hike to dampen price rally also poses downside risk to oil prices.
South Korea reported that domestic consumption of oil products dropped -2.6% yoy to 60 mmb in September, the first decline in 6 month, as oil price has more than doubled since the beginning of the year. Consumption in the industrial sector and transport sector also dropped 0.4% and -5% respectively.
Natural gas recovers after plunging -3% Thursday. The US Energy Department reported storage rose +18 bcf to 3734 bcf in the week ended October 16. The increase in stockpile last week was well-below last year's +70 bcf and 5 year average of +60 bcf. Cold weather did help a lot as the average temperature last week was +151% cooler than a year ago and +78% cooler than the average in 5 years. However, in coming weeks, storage will continue to rise as genuine demand remains sluggish.
Stock markets advance in European morning despite disappointing UK GDP. The 3Q09 GDP surprisingly contracted -0.4% qoq, compared with market expectation of modest growth if +0.2%. Economy has been shrinking for 6 quarters, the longest streak in record. The result increases the probability that the BOE will expand the asset purchase program in November.
In the Eurozone, manufacturing PMI rose to 50.7 in October (consensus: 50.2) from 49.3 in the prior month. Services PMI also climbed to 52.3 (consensus: 51.3) from 50.9 in September. Industrial new orders in the 16-nation region also increased, by +2% mom in August, compared with market expectation of +1.2%, following a +3% gain a month ago.
The pound plummeted after the report. Currently trading at 1.64 against USD, the pound has erased gains made in the past 2 days. Apart from sterling, other currency pairs change little. The euro continues to edge higher after breaking above 1.5. Commodity currencies pull back slightly.
Gold price climbs above 1060 in European morning, yet it's not going to shake away the consolidative trading in the near-term. Over the past 3 months, open interest in gold and silver has increased by more than 30% while that for WTI crude oil and natural gas has increased only modestly. There are a few reasons for the phenomenon. As investment demand for commodities has been, to a large extent, driven by weakness in USD, the highly inverse correlation between USD and precious metals has driven investors to gold and silver. Moreover, in order to prevent the excessive rally in oil prices, the CFTC has been tightening its control on speculations in energy futures. WTI crude oil's breach above 80 was somehow unjustified by the fundamentals. Also, OPEC has once again warned of recent surge in crude oil price. It's not unlikely for the regulatory body to exert more control. Therefore, it's predictable that investors switch into precious metals for the time being.