Commodity prices advanced across the board with Reuters/Jefferies CRB Index gained +2% last week. However, while precious metals and certain base metals continued to show strong upward momentum, rallies in other commodities began to lose steam. We believe it's because investors' risk appetite is declining as recent macroeconomic data displayed a mixed picture on global economic conditions. In fact, the VIX, an index measuring the stock market's degree of fear, fell for the third consecutive week, by -5%, to 22.19 last week, indicating investors have become risk- averse.


Crude Oil

WTI crude oil pulled back after recovering to 78.61 Friday. The benchmark contract settled at 77.47, climbed +1.5% for the week. Despite the gain, price movements in recent weeks suggest that a temporary top was formed at 82 in mid-October. Look at the weekly chart, crude oil price rose and dropped on alternate weeks, with declines more than offsetting increases.

After breaking above the range of 65-75 in mid-October, crude oil seems to have developed a new trading range between 75 and 82. While bulls have been attempting push price higher above 80, selling pressures appear to be quite strong there. With solid supports from fundamentals, we suspect if price can sustainably rise above 82 in the medium-term.

OPEC members are satisfied with oil price at 75-78. Angolan oil minister even said that 80/bbl is 'not too high'. However, it's believed OPEC should revisit its current policy should oil price reach 90.

Attack of Hurricane Ida curtailed imports and suspended operations of oil facilities. Therefore, declines in inventories were more than expected last week. Crude inventory drew -0.89 mmb to 336.8 mmb in the week ended November 13 as led by decline in the Gulf Coast as attack of Hurricane Ida suspended oil imports and productions. However, builds were seen in the East Coast, West Coast and the Midwest.

Gasoline stockpile dropped -1.76 mmb as demand rose slightly to 9.02M bpd. While improvement should continue in coming weeks in preparation for the Thanksgiving holiday, current level of consumption remained low compared with historical average.

Distillate stockpile was down -0.33 mmb with demand edging higher to 3.6M bpd. However, in a bigger picture, distillate consumption made no changed from October's average and demand from the industrial sector remained stagnant. Refinery runs slipped to 79.4%, down -0.5% from the prior week.

Natural Gas

Gas price movement continued to be volatile over the week. After rebounding +7.8% to 4.734 Tuesday from the low in the prior week, gas price tumbled to as low as 4.22 Thursday amid disappointing gas storage report. Price then bounced back again and closed at 4.424 Friday. On weekly basis, gas price added +0.7%.

Gas storage climbed +20 bcf to 3833 bcf in the week ended November 13. The increase slightly widened the difference from 5-year average to 12.3%.

Meteorologist forecast weather in coming weeks will still be warmer than historical average and this will be a bad news for natural gas demand which should remain threatened. We double gas storage will rise further in coming few weeks and this should continue to depress price.

Precious Metals

Buying remained strong in gold and other precious metals. Last week, gold rallied +2.75 to 1146.8 and the new record high was set Wednesday at 1153.4.

Central bank buying continued to be the theme for the week. After the Reserve Bank of India, the Bank of Mauritius bought 2 metric tons of gold from the IMF at market price on November 11. Compared with India's 200 metric tons, Mauritius' purchase was insignificant. However, same as the deal with India, it has important implications.

Earlier this year, the IMF announced its plan to sell a total of 403.3 metric tons of gold to bolster its finances. The news weighed on market sentiment as investors worried about at how much and to whom the gold would be sold. Now, more than half of the planned amount has been sold to official sectors at market prices, this alleviated market concerns. Rather it spurred speculations that more central banks are seeking to increase gold holdings in their currencies.

In April, China, the biggest gold producer in the world, increased reserves by +76% to 154 metric tons since 2003. The market anticipates China will be another big buyer of IMF's gold.

Since the beginning of 2009, gold price has rallied almost +30%. Also, after breaching 2008-high at 1033.9, the yellow metal's rise has accelerated, jumping more than 100 dollars in a month. However, the long-term uptrend is not likely to end soon.

Apart from official buying, new gold funds should give a further boost to robust investment demands. John Paulson announced his plan to launch a new gold fund next year with as much as $250M of his money. Large gold EFTs or funds usually have holdings that are comparable to central banks. For instance, SPDR Gold Shares, the world's largest gold ETF, ranks #5 in terms of the amount of gold it holds. The ranking is just below France and above China!

In coming weeks, gold price should continue to be very much directed by USD's movement. However, the inverse relationship between gold and the dollar should not be taken for granted. For instance, in the 90s, the yellow metal's supply was so abundant that its price plummeted a lot. In 2005, gold price surged due to tightness in the market. Therefore, some analysts argue that gold price may continue to rise given the reduction in gold mines and central bank demand, despite possible rebound in USD early next year.