Crude oil extends last week's sideways trading around 40/41 level in Asian session. Potential strike by the United Steelworkers union as well as OPEC's output cut continue to support oil price.
The United Steelworkers union has not yet accepted a new contract proposed for 30 K of its members by Royal Dutch Shell. If an agreement is not signed within these few days, a strike may be carried out which will affect 8.7% of US' refinery capacity.
On the supply side, OPEC has found to have 100% complied with the new quota and some member nations, such as Venezuela, expressed that they are ready to support further reductions. Tanker-tracking agency, Oil Movements, said in a report last week that OPEC is going to reduce daily shipments of crude oil by 0.7% to 23.55M bpd in the 4 weeks to Feb. 14. The act is to further stabilize oil price.
Last week, a substantial build in crude inventory have likely widened the spread between WTI and Brent crude. We believed increase in inventory should affect the term structure of oil futures curve and cause widening in the contango situation. Although OPEC has been trying hard to balance supply, a meaningful recovery in oil price will not be seen until in the medium to long term.
Gold price retreated to 915 level after surging to 930.3 last week as traders took profit after the precious metal rallied by more than 3% last week. Investment demand in gold is expected to remain resilient this week as investors flock to safe haven amid aggressive fiscal and monetary stimulus which will likely re-inflate global economy.
For the week ahead, we will have rate decisions by RBA, ECB and BOE. Except for ECB which will likely hold rate unchanged for the month, both RBA and BOE are forecast to reduce interest further. History told us that gold price performed better when interest rates are low - as the opportunity costs of not holding currencies are lower.
Stock markets in Asia slid Monday as financial and technology sectors underperformed amid deeper recession. The MSCI Asia Pacific Index plunged 2.3% while Japan's Nikkei 225 Stock Average lost more than 2% as Hitachi lost 16% after the management forecast a record loss.
In European session, we will have final manufacturing PMI (January) in the Eurozone and Germany, as well PMI readings for Switzerland and Britain. In US session, a series of personal consumption data will be released. Lower working hour and rising unemployment are expected to have hammered December's readings.
