Market sentiment was mildly bearish last week as economic data disappointed and the focus, after Obama’s reelection, has been re-directed to fiscal cliff in the US and sovereign debt crisis in the Eurozone. Unfortunately, both issues have so far lacked promising resolutions. While it’s widely anticipated that the While House would attempt to alleviate the impact of expiration of the Bush-era tax holiday and the automatic beginning government spending cut in 2013 but allowing extension of certain kinds of tax reduction. Democrats and Republicans were still split on issues such as whether the government should raise taxes on the middle class. In the Eurozone, the EU meeting was a non-event. EU finance ministers failed to agree on the next tranche of bailout fund for Greece. An emergency meeting will be held on November 20, hoping to find a decision. Meanwhile, European Economic Affairs Commissioner Olli Rehn's said that the country did not need to adjust its budget despite the likelihood of a fiscal shortfall this year. According to the Rehn, Spain has taken "effective action in 2012 and 2013" and the consideration was "not so much focused on the nominal targets, even though they often make easier headlines because they are exact percentages". Spanish Finance Minister Luis de Guindos stated that the government would meet its 2012 deficit target and said that it’s only acceptable for the country to pay no more than 200 bps over bund for financing instead of the current 450 bps.
Crude oil: The spread between WTI and Brent crude widened above 26 Thursday, the widest level since October 2011 as traders appeared to have adopted long Brent/short WTI strategy. Investors long Brent crude on concerns that escalated tensions between Israel and Palestine might affect supply. This upstages possible disruption on WTI crude output due to a fire on a Gulf of Mexico energy platform. Indeed, WTI-Brent spread has been widening over the past few months. The bottleneck at Cushing should be one of the reasons while BP’s refinery closure in Indiana only worsened the situation. However, as pipeline reversal projects in the Midwest begin, the situation would improve. For instance, Seaway pipeline and Canada's Enbridge were reversed in June to carry oil from the north to the south of the United States, suggesting that 150K bpd of crude is being moved out of Cushing and down to the Gulf Coast. Capacity of Seaway pipeline is expected to reach 850K bpd in 2014.Other reversal projects such as the Longhorn pipeline and the Keystone XL southern leg are expected to start operation by the first half of next year.
Natural Gas: The DOE/EIA reported that natural gas storage fell -18 bcf to 3 911 bcf in the week ended November 9. Stocks were +71 bcf higher than the same period last year and +209 bcf above the 5-year average of 3 702 bcf. Separately, Baker Hughes reported that the number of gas rigs gained +4 units to 417 in the week ended November 15. Oil rigs increased +1 unit to 1 390 and miscellaneous rigs slipped -2 units and the total number of rigs added +3 units to 1 809. Directionally oriented combined oil, gas, and miscellaneous rigs stayed flat at 194 units while horizontal rigs climbed +1 unit to 1 105 and vertical rigs gained +2 units to 510 during the week.
Precious Metals: PGMs gained while gold and silver slipped last week. PGM prices were buoyed by the report from Johnson Matthey that both platinum and palladium would likely record deficit this year. Gains were, however, pared later in the week. For platinum, prices retreated as Anglo American Platinum announced a resolution with the workers. Representatives of the labour group said they had accepted the company's offer, but would still request a wage increase to ZAR16K. The company stated that it had lost 191K oz of platinum and it would take at least a week to resume production at the operations. The benchmark contract for platinum surged to a 3-month high of1603.3 on Wednesday but gains were pared over the subsequent days and settled at 1561.8 on Friday. Palladium also experienced similar trading pattern but was able to secure more than +2% gains on weekly basis. Speculative interest in platinum has been higher than that of palladium which relies less on investment demand flows.
Gold’s rally in the beginning of November was short-lived and a recent trading range has been developed at 1700-1750. Despite this, gold has maintained a premium of around 100/oz above platinum. Concerns over US’ fiscal cliff and geopolitical tensions should remain supportive to gold price. The latest report by the World Gold Council indicated that demand from China slipped in the third quarter of the year which was offset by growth in India. For 2012 as a whole, it would be hard to determine which of the 2 Asian countries would be the largest gold buyer. The Council expects China to consume 750-800 tons and India to consume 700-750 tons.
Oil and Gold Reports contributed by Oil N' Gold