Crude Swings back to its Well-Tested Range High as Bounds on Sentiment Remain

 

After spending well over a week bound to a tight range, oil on the NYMEX pushed above its frequented range top around $80.50 and forged a high at levels not seen since January 18th. This is a notable statistic for a high; but the sustainability of this trend extension is still under questions. From the market itself, there are telltale signs that speculative interest is still mute. Volume on the active futures contract has generally trended lower since the February 4th reversal and open interest has fallen since mid-January. Behind this price action is a stalled sense of investor sentiment – a condition that descended on the capital markets approximately two weeks ago. This has kept crude to its range, EURUSD to a 250-point channel and left the Dow to struggle in its push above 10,400. What can recharge sentiment and trend (bullish or bearish)? That is what traders are wondering. Tomorrow, Greece is expected to announce additional measures to reduce its deficits to the tune of 4.8 billion euros. Considering the trouble this struggling economy poises for the European Union, the market will certainly be vested in the measures policy officials are taking to avoid a renewed financial crisis. If this fails to revive activity, the BoE and ECB policy decisions on Thursday or US NFPs due on Friday could shake investors into action. 

 

From an economic perspective, today’s data would add relatively little to the supply/demand equilibrium argument. While there was high-level economic event risk on the docket, there was little update on the health of the largest energy consumers. Furthermore, given the mixed winds between the Chinese and US manufacturing data as well as the strong spending data from the latter; there is little impetus for speculation. Looking out over the next 24-hours, if sentiment is not forcing price action, crude-specific volatility could be found through the weekly inventory reports. The American Petroleum Institute’s stockpile figures are due this afternoon and the US Department of Energy numbers are scheduled for release tomorrow at 15:30 GMT. The government’s report is expected to show a 1.28 million barrel increase in crude holdings which would extend the longest run of increases since May. Analyst and economists expect increased imports to facilitate this increase. The previous report showed imports jumped 6.3% to 9.08 million barrels per day – the highest level since October.

 

 

 

 

Despite tentative price action across other growth-sensitive markets, gold has pushed with gusto to a new high. After clearing the frequented $1,125 level, the precious metals extended its rally to a January 20th high. This was certainly mirrored by weakness in the US dollar, which has retraced throughout the morning hours of the US session. At the same time, against other weak currencies, gold has put it for record highs when priced in euros and British pounds. This initial rally is impressive; but its sustainability is questionable. Considering today’s technical break was the mixed influence of a weaker US dollar (the dollar-hedge role), uncertainty surrounding the outcome of Greece’s financial troubles (the safe haven role) and a mild advance in speculative interest; conditions were aligning nicely for an advance from the commodity. On the other hand, all three of these particular drivers has notably struggled to develop a genuine trend. Without a clear and strong bearing on market-wide investor sentiment , gold will be unable to establish its own drive. However, there are plenty of catalysts to look forward to over the coming days. Topping the list is the security in sovereign credit ratings and its impact on fiat currencies. Should Greece’s efforts be deemed too little to avoid default or record deficits from any number of major economies swamp lead to instability, gold will leverage its value as a safe haven and alternative investment. In other news, the power of speculative influences on price action was confirmed by two stories that suggest gold supplies will increase going forward. A planned strike at South Africa’s largest mines was avoided after owner Gold Fields Ltd said it would work towards a deal with the union. Also, the Australian Bureau of Agricultural and Resource Economics forecasted gold output from the country will grow 10 percent over the next fiscal year beginning in June.

 

 

While risk appetite was firm but reserved, silver would defer from the trends that the dollar and Dow was cutting and followed the pace laid out by Gold. The metal would enjoy its most aggressive advance in two weeks to push spot prices to their highest levels since January 26th. Furthermore, notable follow through for strength behind the base metals complex would further leverage silver’s attachment to bullish trends. However just as it is with any other asset that it fundamentally tied to underlying risk appetite, establish a trend to follow this break will require a true advance in investor sentiment. In the meantime, the lagging data on futures activity shows open interest on the active silvers contract dropped to its lowest level since September 2nd this past Friday. This is a discouraging sign for an advance in prices as it relates a lack of conviction.