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Waning Demand Looms over Oil, Copper while Gold Braces for Rate Hike

Waning Demand Looms over Oil, Copper while Gold Braces for Rate Hike

Nathalie Huynh,

Talking Points:

  • IEA’s annual energy outlook emphasized deteriorating demand for oil
  • Gold steadies now that Fed’s December rate hike is fully priced in
  • After weak China imports, OECD’s growth forecast dented copper

The International Energy Agency, a multi-governmental body in Paris, published its annual World Energy Outlook today (by subscription). This research predicts oil demand will rise by less than 1 percent a year until 2020. Cutbacks in oil investment this year, estimated at 20%, will eventually stall ex-OPEC output growth by 2020. Price scenarios are put at $50-$80 a barrel until 2020.

Faith Birol, executive director of the IEA, sums this up with the Financial Times: “We are approaching the end of the single largest demand growth story in energy history,”. “Demand is not as strong as we have seen in the past as a result of efficiency and climate [change] policies...Big energy companies are underestimating the effects of all of these things on the demand side."

The report was of little impact to oil after its 3.3 percent decline from $45 to $43.64 overnight. Yet it may provide long term implication to investors. Today’s prices are likely contained above $44.

Gold held near the lowest in three month on a second day of gradual recovery after Friday’s crash. Overnight, Federal Reserve members Rosengren and Evans spoke that they are “reasonably confident” and “not against” a December lift-off after strong October Non-farm payrolls number. Speculations on a rate rise will make limited impact now that the market already priced it into gold price and US dollar.

Copper on COMEX traded moderately lower while copper on Shanghai Future Exchange scraped 1.3 percent after China’s trade data showed weak demand for raw materials. A semi-annual Global Economic Outlook published by the OECD dented the macro picture (and material demand) further. There is no upside prospects for copper at this stage.

The Organisation for Economic Co-operation and Development (OECD) trims global economic forecast in its report on Monday, citing slower growth in emerging market. The report pinpoints slowdown in China, Russia and Brazil as sources of global uncertainty.

GOLD TECHNICAL ANALYSIS – Gold gradually edged up as market stabilized after initial adjustments to a probable December rate hike. Friday’s low at 1085.56 will likely hold as a support level in near term. There is no upside potential today as momentum signals already peak out. Range traders may buy dips with tight stops for small profits before future event risks.

Waning Demand Looms over Oil, Copper while Gold Braces for Rate Hike

15-minute Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – The weekly chart of copper shows it is heading down to the multi-year low at 2.2025 after breaking through an earlier support at 2.2255. The bears should be cautious around this strong support level. Downward momentum signals indicate further declines to come. A medium-term resistance and 20-week moving average tops the upside at 2.370.

Waning Demand Looms over Oil, Copper while Gold Braces for Rate Hike

Weekly Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS WTI oil is fixed on another test of the September-October support level at 42.58. Market momentum almost bottoms out, making a breach of support unlikely. At top, 5-day moving average and resistance at 44.92 caps daily prices. Range traders may prepare for a rebound if oil fails to test support level.

Waning Demand Looms over Oil, Copper while Gold Braces for Rate Hike

Daily Chart - Created Using FXCM Marketscope

--- Written by Nathalie Huynh, Currency Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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