Oil Furthers its Rebound as Volatility and Speculative Fears Settle

North American Commodity Update

Commodities - Energy

Oil Furthers its Rebound as Volatility and Speculative Fears Settle

Crude Oil (WTI) -  $77.15  //  $1.10  //  1.45%

The fallout in risk appetite attached to last week’s Dubai World credit scare seems to have stabilized quickly – even if the fundamental troubles remain. With Monday’s session, the markets are once again back to full liquidity and there is clearly a desire by the masses to keep the market it a manageable range heading into the end of the year. However, considering the long-term prospects for the energy market and the expected milestones for economic expansion, crude can reverse at a moment’s notice should risk appetite or aversion once again block out fundamental rationality. The most pressing concern for the oil market – and just as critical to equities, currencies and other commodities – is the resolution to the looming Dubai default. The government has expressly said it would not guarantee the state-run group’s liabilities; but market participants are nonetheless confident funds will materialize to prevent a panic-inducing outcome.

Other headlines for the day were largely supportive of a rebound in the energy bloc. According to UK officials, the Iranian Navy was detaining five crewmembers from a British yacht. Though still a small incident, this threatens a larger political spat, especially considering Iran announced its intentions to expand its nuclear policy this weekend in direct opposition to UN demand. For market sway, reports that Somali pirates seized another supertanker heading form Saudi Arabia to the US isn’t highly surprising; but the activity in the heavily trafficked region is a constant threat to supply lines and the costs associated with transport. From macro data, the Institute for Supply Management-Chicago Inc’s business activity index grew at its fastest pace since August 2008. This lends weight to reports that Canada called an official end to its recession in the third quarter and Japan’s year-high in annual factory activity to paint a picture of improved demand and a steady, global recovery from the demand chocking recession. Switching gears from headlines to trader interest, the Commitment of Traders report from the CFTC reported that net speculative long positions in crude dropped 13 percent to 75,493 contracts through the week ending November 24th. The balance between sentiment and fundamentals is correcting – slowly but surely.

Commodities - Metals

Gold Takes a Break from Record Highs but Buying Interest Still Obvious

Spot Gold  -  $1,178.20 //  $0.58  // 0.05%

The fear surrounding the possible default of Dubai World’s debt obligations has settled at the start of the new week; but gold is still shaken up. Through the worst of the panic through last week’s illiquid sessions, the precious metal was incredibly volatile and clearly heading lower. The CBOE Gold Volatility Index is still at 26.27 percent and therefore just off its two-and-a-half month highs; but price action has shown far more stability. In the aftermath of the extreme volatility of the past week, we have seen gold’s strength laid bare when risk fully shifts from its multi-month advance. Already pushing record highs and likely struggling to attract investor funds to supplement expected central bank interest, the pricey commodity has taken on too many qualities of a speculative asset to genuinely offer stability of funds when volatility rises and liquidity is an imperative. At the same time, this situation maintains another of gold’s primary roles: as a counterpart to the US dollar. The greenback ended the day slightly in the red Monday (recovering from some of its earlier losses); and the metal was certainly reaping the benefit. From fundamental concerns to traders demand; the weekly COT data reported a hearty 11.3 percent increase in speculative long positions to 262,331 contracts through the week ending on the 24th. More timely, the SPDR Gold Trust grew 2.13 tons to 1,129.99 tons.

Spot Silver  -  $18.43  //  $0.13  //  0.68%

Speculative interests were clearly having an outsized influence over silver through Monday’s session. The more affordable metal would end the day in the green and show an extension of the late-session reversal from this past Friday. Lower daily wicks over the past two weeks have shown a heavy market interest in keeping the metal above $18 per ounce. With a fortunate return of liquidity and stability, investors’ appetites are better able to take back control of this commodity. According to recent reports, net long positioning in the metal measured by the COT jumped 12.8 percent last week to 45,648 contracts while the largest ETF backed by Silver (the iShares Silver Trust) grew by 1.7 percent to 9,404.79 tons.



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Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com