North American Commodity Update
Commodities - Energy
Crude Oil (LS NYMEX) - $83.36 // $0.99 // 1.20%
The unremitting struggle between fundamental and speculative factors in the energy market took a notable shift Wednesday. Despite another increase in US fuel stockpiles, the active crude futures contract on the NYMEX put in for an early morning rally that pushed the market through the frequented $83 level and on to an intraday high that was just slightly below the 17-month high set back on January 11th. On the other hand, the daily settlement on the futures exchange would see confirm the commodities highest close since October 9th, 2008. In the face of discouraging supply/demand data, energy traders would find a bullish drive from a sharp drop in the US dollar
(the benchmark pricing instrument). Normally, the benchmark currency’s losses and concurrent advance in the commodity bloc would support the theory that investor sentiment is seeing a renewed taste for risky positions. However, other barometers for risk appetite would not corroborate such a sweeping outlook for the speculative crowd. In fact, US equities (one of the primary measures of investors’ interests) would not stray from the congestion that has developed over the past week and the session in turn closed in the red. If this is indeed a sign that speculative conviction still eludes the markets, this aggressive push (and even a tentative breakout) could ultimately be doomed to falter. Considering the dovish economics behind this market, it will take a significant drive in risk appetite to fill the gap in the medium-term.
Speaking of the fundamentals behind the energy bloc, the top release for oil traders was the US Department of Energy inventory figures for the week ending March 29th. The API report released the previous afternoon prepared the crowd for a disappointing print; but the DoE’s crude stockpile would in fact best expectations with a 2.93 million barrel increase. This was the ninth consecutive weekly increase in (the longest series since May) which brought total holdings to a nine-month high of 354.2 million barrels. And, while this release would compel a remarkable pullback from the opening session highs, other statistics would work to negate the bearish influence this data would have been able to maintain. Another interesting highlight from the same report was the 1.5 percent point jump in the refinery capacity to a near six-month high of 82.6 percent. Though there is still a lot of slack in production lines, this pickup suggests the global recovery is starting to filter through to energy demand. In other news, OPEC production levels eased back in March from its 14-month high to a 29.21 million barrel per day clip. Furthermore, US factory orders reportedly rose for a six month through February and the business activity survey from the Institute for Supply Management-Chicago reported growth for the manufacturing sector for a sixth consecutive month. This macro data is a good lead in to tomorrow’s more closely monitored ISM manufacturing report. For some contrast for timing and speculative bearing, US President Barack Obama would also announce his support for tapping oil reserves off the Eastern coast of the US. It will take years for any of this oil to make it to consumers; but the promise of new supplies still shifts the balance of global demand now.
Commodities - Metals
Gold Advances to the Top of its Channel as the Dollar Tumbles
Spot Gold - $1,113.15 // $9.55 // 0.87%
Finding support from both the a weaker dollar and the general buoyancy of the commodity market, gold would enjoy a notable rally through Wednesday’s session. Offering the broadest daily range we have seen so far this week, the precious metal advanced until the opening hours of the US session; coinciding with the stabilization of the currency and the disappointing open for the equities. The commodity continues to maintain its conflicting alliances to various fundamental roles for global investors. However, whether traders are seeking out a speculative currency, dollar-hedge, safe haven or fiat alternative; it is ultimately the force of the specific driver that determines gold’s fundamental bearings. Therefore, the relatively reserved appetite for risk and dimmed interest in sovereign credit health would allow metal traders to focus on the aggressive tumble in the greenback. That being said, the dollar’s plunge is a deviation from an otherwise anchored sense of risk appetite. As such, the currency’s declines could ultimately be limited and gold will have to find support from some other factor to maintain its advance. From sentiment to fundamental demand, the Bombay Bullion Association reported demand from India for the precious metal grew fivefold through the month of March as the world’s largest consumer of the commodity entered wedding season.
Spot Silver - $17.50 // $0.20 // 1.16%
Like gold, silver rallied through the first half of Wednesday’s session on the back of a weak dollar. However, with the open of the US markets, the currency and metal’s moves would both be curbed. Settled just below a range high of $17.65/50, speculative interest is notably picking up. Volume and open interest would hit a three and five week high respectively on delayed COMEX data (these statistics are for Monday).
Written by John Kicklighter, Strategist
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