Earlier in the week, WTI crude oil price did attempt to pierce the 80 resistance. However, both industry-specific fundamentals and macroeconomic data were not strong enough to sustain the breakout. Release of bearish US inventory data and reduced consumer sentiment triggered sharp selloff towards the end of the week.

Gold continued its journey to uncharted region and reached a fresh high at 1123.4 Thursday before retreat. However, the strong rebound at NY session Friday signaled investment demand for the precious metal remained robust and we expect the long-term uptrend should resume after consolidation.


Crude Oil

Decline in crude oil price accelerated after the US reported surprising drop in consumer confidence in November. Price plummeted to 75.57, the lowest in a month, before recovery. The benchmark contract closed at 76.35, down -0.8% and -1.4% on daily and weekly basis respectively.

Preliminary reading for the University of Michigan sentiment index fell to 66 in November from 70.6 in October. Although strong GDP growth (revised down to +3.1%) in 3Q09 was a good news, the 26-year high unemployment rate continued to hurt consumer confidence. Consumers lacked job security and this diminished their desire to spend and to invest.

For energy-specific data, we received the weekly inventory report from the US Energy Department. Moreover, the 3 oil agencies also published their latest forecasts on global oil demands. In short, the data were still mixed, pointing to long-term recovery with short-term headwinds seemingly inevitable.

Crude inventory rose +1.76 mmb in the week ended November 6 with the Midwest leading the build. Oil inventory in that region surged +2.1 mmb of which 1.4 mmb was from Cushing, Oklahoma. Other regions also showed modest builds with decline only seen in the East Coast. Refinery runs dropped to 79.9%, the lowest in a year although many facilities have resumed operations after maintenance. This was probably driven by abundant fuel stocks.

After making a trough of around -$5 in August, the spread between WTI and Brent crude oil has turned positive again since September. However, WTI's premium to Brent has narrowed recently as driven by increasing stocks at Cushing, Oklahoma, the place where WTI oil is stored.

The biggest disappointed came from gasoline stockpiles which surged +2.56 mmb. Gasoline demand fell -1.9% from a week ago to 8.844M bpd. The reading was also -1.7% below the level a year ago. 4-week average at 8.917M bpd represented declines of -1.1% and -1.5% on weekly and annual basis respectively.

Distillate inventories climbed -0.35 mmb, the first increase in 5 weeks, as demand slipped. Weather in the Northeast was warmer-than-expected in November and this dampened demand for heating oil.

All of the US Energy Department, OPEC and the International Energy Agency revised upward their forecasts of global oil demand for 2009 and 2010. Although the sizes of upgrades were different among these agencies, the common factor was heavy reliance on demand growth from China.

Macroeconomic data in China were broadly encouraging. Expansions in industrial outputs, power generations and retail sales accelerated in October, fueling speculations that the nation's GDP growth can reach +10% the first in more than a year in 4Q09. Moreover, robust industrial activities and electricity usage signaled strong demands for energy and base metals. However, as Chinese Premier Wen Jiabo said, there are still uncertainties for the road to recovery.



Natural Gas

Gas price slumped to 4.287 as the Energy Department reported +25 bcf (consensus: +20 bcf) rise in gas storage to 3813 bcf in the week ended November 6. Although the level of increase tightened the year-over-year surplus and the surplus as compared to 5-year average, it sent the absolute gas storage to a fresh record high. The benchmark NYMEX contract climbed +0.5% from Thursday but recorded a weekly drop of -4.4%.

We remain bearish on natural gas price as demand is still bottoming while supply continues to stay at record level. Warm weather serves to worsen the already-weak fundamentals and this should result in delay in recovery.

According to Baker Huges, the number of gas rigs dropped 6 units in the week ended November 13. However, it did not help resolving the problem of oversupply. Since mid-July, the US gas rig count has gained +9.5%. Industry data showed that the economic threshold for US shale plays has been declining, suggesting greater production per rig per USD spent. Rising production efficiency has encouraged E&P companies to increase investment budgets. This exacerbates the demand/supply imbalance.