AFP: Oil could hit $55 before it sees any real recovery
By Ole S Hansen on Monday, November 03, 2008
Crude Oil WTI recovered some ground last week but it happened without any significant conviction. After the dramatic sell off in previous weeks the market was ready for a move to the upside and the trigger was not due to Opec's 1.5 million BPD cut in production, nor was there any positive news out from the global economy, where major countries are heading for recession.
The main driver came out of Japan, where speculation about a Bank of Japan rate cut did enough to halt the most unbelievable yen rally the market has seen for many years.
This strength was mainly blamed on the escalating unwinding of the yen-carry trade. As the yen stabilised and began to weaken so did the dollar, especially after the Fed cut rates by 0.5 per cent.
This weakness has been the main reason for commodity markets recovering this week before succumbing to new dollar strength. Technically we broke up through the steep down trend from late September, which indicates some consolidation ahead. Crude Oil needs to rally above 80.00 (38.2 per cent retracement) before any talk of change in that direction can begin. We see CLZ8 trade between 70.00 and 60.00 and would be sellers into strength.
Having met our near-term target of $62 we still believe that $55 could be reached before any meaningful recovery can occur. Keep an eye on the dollar [and the yen] for direction.
Gold for December recovered briefly earlier in the week, after having traded through trend line support at $700 testing the August 7 lows. The rally was driven mainly by the correlation to the dollar but also equities and base metals played its part. Gold will remain under pressure into 2009 as demand for jewellery will continue to deteriorate. Technically, a new negative pattern is now developing, which could bring $600 into focus on a break below $681.
Grain and Oil seeds markets: Near term the outlook is still in the balance as a combination of low volume, high volatility, weak export, good weather and weak crude oil prices keeps the market under pressure.
Soya bean seems the most resilient at the moment followed by corn. We remain cautiously optimistic about future price movements from here but waiting for a decisive move before entering the market.
