Although crude oil price (NYMEX futures for November delivery) recovered by $3/bbl after falling to 14-month low at 71.21 in Asian session, we view it is only a rebound due to oversold condition. Oil price's upside should be limited to 77.09 and yield resumption of decline from 147.27 for weakness to 68.6. The sharp decline today was due to investors; concerns over the incapability of bailout plans to avert recession.
Recently oil price movement somehow tracked the equity markets. In Asia and Europe, equity markets tumbled. Japans benchmark Nikkei 225 index was down 11% after the DJIA plunged 7.9%, the largest decline after 1987 crash.
Oil demand is very much related to GDP growth, with world economic outlook turned gloomier than expected, previously-forecast consumption rate became too optimistic. Although it;s widely anticipated that OPEC will cut production in its November meeting, worries remained that production cut is not able to 'catch up; with demand contraction. OPEC said today that the ideal price for oil is $70-90/bbl. The cartel, in a report earlier, also trimmed estimates on demand forecast for 2009 by 0.5% to 87.21m bbls a day. The same report revealed consumption in OECD fell by more than 1M bbls a day in September compared to the same period a year earlier. Demand growth from developing countries increased by a daily 1.2 million bbls over the same time.
The market is waiting for EIAs inventory report which is to be released at 1100 EST today. According to Bloomberg survey, crude oil stockpiles last week increased by 2.6 mmb, gasoline by 3mmb which distillate by 0.5 mmb. Builds of inventories are normally viewed negative by the market.
Surprisingly, gold was sold off severely in US morning, despite a safe-haven asset in an uncertain market. The precious metal for December delivery broke the lower boundary of recent trading range (822.5 - 936.3) and sank to 793.5 after release of better-than-expected US jobless claims. The new reading showed that the number of people claiming unemployment subsidies was 461 000, lower than 478 000 last month as well as 475 000 forecast. However, Octobers Philadelphia Fed survey threw investors into hell against as the data came in at -37.5, significantly lower than -10 in consensus and +3.8 last month.
Gold abrupt selloff indicated that correction from 989.6 is still in progress and weakness to 767.4 cannot be ruled out. However, we believe 739.8 support would hold and resume earlier rise.
USD's rally was another factor causing gold;s decline. USD rose to 82.35 as yen lost ground after rising on previous days. The yen reversed gains from near a three-year high versus the euro as S&P 500 futures advanced following the sharp fall in US market Wednesday. The dollar also gained as the market believed that financial crisis would encourage flight to U.S. Treasuries.
JP Morgan recently rose its forecast on gold price to $904/oz in 2008 (+2.3% from previous forecast) and $875/oz for 2009(+2.5%). Although the forecast was lower than our and Merrill Lynch's forecasts, the idea behind is the same. We do believe gold should offer its value as safe haven during financial turmoil.
***UPDATE*** EIA has just reported petroleum inventories for the week ended Oct 10. Both oil and gasoline stockpiles increased more than expected (Crude :+5.61 mmb vs +2.6 mmb in consensus; gasoline: +6.97 mmb vs -3 mmb in consensus), signalling demands on crude oil and refinery products started to be negatively affected by recent financial crisis and economic slowdown. Oil price extended weakness to 69.15 while gold futures plunged to 793.5.
Posts
No comments:
Post a Comment