By Leon Westgate
Crude oil has rallied on the back of the weaker dollar, nevertheless, prices have been rather subdued with front month WTI again struggling to make much headway above $81/bbl this morning.
Given the recent trend of a stronger morning session followed by afternoon weakness, it seems that oil has a bit of work to do this afternoon if prices are going to end the week on a positive note.
Seasonal demand factors and concerns over rising inventories are likely to continue weighing on sentiment towards crude oil, however, month and quarter-end factors are also likely to come into play today and early next week.
Consequently, although we expect prices to remain under pressure, the next couple of days are likely to be rather volatile. Short term direction will continue to be dominated by fluctuations in the dollar, but also by technical signals.
Coal prices have softened a little with API2 for Q2-10 falling $0.35 to $73.25/mt and Cal-11 falling $0.85. API4 has fated a little better, with Q2-10 unchanged and Cal-11 declining $0.30 to $85.20. The declaration of force majeure at BHP Billiton’s Hay Point terminal has seen spot coking coal prices pick up, however the impact is understandably rather localised.
In other news, a drought in Southwest China has increased speculation that Chinese demand for coal may increase in order to offset the drop in hydroelectric power output. This may give coal prices some support in what is traditionally a weaker seasonal demand period.
