Oil reached our first target of 53.69 (100% projection of 147.27 to 90.51 from 110.45) and continued to trade lower Wednesday. Although oversold condition and loss of momentum might lead to a brief rebound, bearish outlook in short and medium has not changed.
Last week, a report from CFTC showed that non-commercial traders’ expectations of oil prices were the most bearish in 3 years. Non-commercial traders have increased their net short position with net shorts rising by 42441 contracts to 52984.
As more countries have proved to have entered recession, demand outlook remained unsettled in the minds of investors. MasterCard reported that US gasoline demand fell 2.8% last week with motorists bought an average 9.031M bbls of gasoline a day in the week ended Nov 14. The decline was the 30th in a row.
The market is waiting for EIA’ s weekly report on petroleum inventory. According to Platts’ survey, crude added 1.2 mmb in stockpiles, while gasoline and distillate gained 0.7 mmb and 0.9 mmb, respectively.
As a barometer of economic growth, oil price has been tracking stock market movements. Although US shares rose yesterday with S&P 500 added 1% to 859.12, the first advance in three days; Dow Jones Industrial Average also gained 1.8% to 8,424.75, Asian and European market continued to fall Wednesday. The MSCI Asia Pacific Index fell 0.8% to 79.24, mainly contributed by retreat of financial sector.
Talking about US’ rally, we view this as valuation call as many stocks have been sold down to very cheap level which made them look appealing. We think 1 or 2 days’ outperformance won’ t help change medium term outlook.
Rumour about the date of OPEC meeting never ends! While in the past few days we’ ve got the Chairman’ s denial about an early meeting in November 29, some news emerged today that some cartel members urged a meeting before December to save the nose-diving oil prices.
Gold traded narrowly within 734-742 today as the market is waiting for the US CPI meeting and FOMC minutes which have significant impact on US’ interest rate outlook.
CPI for October probably dropped 0.8% MoM after being flat in September. Core CPI, excluding food and energy is expected to have risen 0.1% for a second month.
Declining inflation pressure has mixed effect on gold price. Gold, often treated as a precious metal, lost its appeal as an inflation hedge when economy slowed down and inflation declined. However, the US recessionary economy and lower inflation pressure could give the FED more room to cut interest rate, thus, dragging down demand for dollar. It’ s positive for gold when dollar is down.
So, how would gold price/the dollar be affected this time? We do not think rate cut would devastate the dollar much in the current condition as almost every central bank is cutting interest rate. Afterall, US interest rate has already reached 1% and is going to be 0.5% in the next meeting. All negatives about rate cuts have been factored in dollar. Instead, as other central banks such as ECB, BOE, RBA and RBNZ are aggressively catching up in easing monetary policies, investors should be moving out from those high-yield currencies to USD.
By OilNGold
