Weekly Fundamental & Technical Outlook for Crude Oil and Gold +
Q-2 Y 2010 was a hard Q for the commodity sector as the uncertain nature in macroeconomic outlook triggered sharp declines, particularly in energies and base metals.
Disappointing macro data from China and the USA, caused players to lose confidence in the economic outlook, and risk appetite deteriorated.
Crude Oil and base metals recorded the deepest falls since Q-4 Y 2008 on demand concern outlooks. Nat Gas, Gold and Silver were the only gainers during the period.
Gold price rallied as driven by the flight to safe-haven, and Silver followed Gold, given the strong correlation between the 2 precious metals.
Crude Oil
WTI Crude Oil plunged after failing to test 80 Monday. The front-month contract fell for the whole week and eventually settled at 72.14, down -8.52%. Crude Oil products recorded even sharper drops with Heating Oil and Gasoline sliding -9.31% and -3.58%, respectively.
According to the US Energy Department, total Crude Oil and petroleum products stocks surged +3.58 mmb to 1101 mmb in the week ended June 25. Utilization rate dipped -1% to 88.4%. Crude Oil inventory dropped -2.01 mmb to 363.1 mmb with the biggest draw in the West Coast (-4.34 mmb). Cushing stock fell -0.80 mmb.
Gasoline stockpile increased +0.54 mmb to 218.1 mmb while the market had anticipated a drop of -0.5 mmb. Production rose +1.21% while imports soared +22.2%. These were partly offset by rise in demand which surged +2.39% to 9.46M bpd. Distillate stockpile rose +2.46 mmb to 159.4 mmb. The bigger-than-expected increase was driven by +1.46% increase in production and +7.02% gain in imports, as demand slid -6.18% to 3.55M bpd.
While the USA is the largest Crude Oil consumer in the World, China is the 2nd largest and the #1 demand growth driver.
According to the Chinese Customs, net Crude Oil imports fell to 4.17M bpd in May from 5.12M bpd in the prior month. The figure was also lower than 4.91M bpd in March. For fuels, while China has been net exporters of gasoline, diesel and to a lesser extent jet fuel, it has been importing fuel oil and LPG. According to Platts, implied demand in China grew +9.8% y/y in May to 8.62M bpd. This was less that 8.65M bpd in April. In the first 5 months of the year, China’s apparent Crude Oil totaled 8.45M bpd, up +113.7% from the same period last year.
In the 2nd half of the year, now I expect economic growth will slow some as major economies will focus on fiscal consolidation, and China will also implement measures to cool its economy.
This will lead to decline in Crude Oil demand growth.
The Overall Crude Oil Weekly Technical Outlook
Nymex Crude Oil (CL)
After moving higher to 79.38, Crude Oil reversed and dropped sharply to as low as 71.92 last week. The development suggests that whole recovery from 64.23 has completed at 79.38.
The initial bias remains on the Southside this week looking for 69.51 support. A break there will augur that medium term fall from 87.15 is resuming for another low below 64.23.
On the Upside: a break above 75.21 will turn intra-day bias neutral, and bring consolidations. But risk will remain on the Southside as long as 79.38 resistance holds.
The Big Picture: the recovery from 64.24 is treated as a correction to fall from 87.15 and has possibly completed at 79.38, a break of 69.51 will indicate that decline from 87.15 is likely resuming.
This will also revive the Bearish case that whole medium term rise from 33.2 finished at 87.15, just ahead of 50% retracement of 147.27 to 33.2 at 90.24. If that be the case, I expect to see another fall to 50% retracement of 33.2 to 87.15 at 60.18 at least.
The Long Term Picture: the current development suggests that rebound from 33.2 finished at 87.15, inside 76.77/90.24 fibo resistance zone as expected. My POV now is that fall fro 87.15 would develop into the 3rd falling leg of the whole correction from 147.27 and then, I will anticipate an eventual break of 33.2 low in the long term as the correction extends. Stay tuned…
Gold and Precious Metals
Gold rose Friday after tapping at a 5 week low of 1196 Thursday. Weak US payroll data raised concerns about global economic recovery and spurred demand for safe havens. Yet, the precious Yellow metal recorded a weekly decline of -3.86%. Profit-taking and broad-based sell-off in the commodity sector were factors pressuring Gold. Silver also slowed, losing for 4 out of 5 days last week, as its industrial demand is at risk should the World economy slow down.
However, despite the weekly decline, Gold and Silver were the only commodities under our coverage that rose, by +11.9% and +6.6% respectively, in Q-2 Y 2010.
PGMs slumped with other industrial metals. In May, both Platinum and Palladium ended their winning streak since late 2008/early 2009, losing -11.2% and -16.6% respectively. The decline continued in June and translated to corresponding losses of -6.65% and -7.41% in Q-2 Y 2010.
Near-term upside catalyst may be potential supply disruption in South Africa as Eskom has not yet reached wage agreements with labor unions.
The Overall Gold Weekly Technical Outlook
Comex Gold (GC)
Gold’s sharp decline last week suggest that medium term rise from 1044.5 finished at 1266.5. More importantly, the development augurs that 1266.5 would possibly be an important Top in the medium term.
The Initial bias remains on the Southside this week and further fall should be seen to the1166 support next.
On the Upside: a break above 1227.6, the minor resistance, will turn intra-day bias Neutral and bring consolidations. But risk will remain heavily on the Southside as long as 1266.5 resistance holds.
The Big Picture: Gold’s rally from 1044.5 should have completed at 1266.5. And the whole medium term rise from 681 might have finished with 5 waves up, on Bearish divergence condition in daily MACD. Sustained trading below 55 days EMA now at 1207.7 will affirm this case and bring deep correction to 1044.5 cluster support, 38.2% retracement of 681 to 1266.5 at 1042.8, at least.
The Long Term Picture: I believe that 1266.5 is an important medium term Top, and look for a sizable correction going forward, but there is no indication of long term up-trend has reversal yet.
Having said that I will maintain the long term Bullish view and expect whole up trend from 1999 low of 253 to continue to 100% projection of 253 to 1033.9 from 681 at 1462 level after completing the correction from 1266.5. Stay tuned…Paul A. Ebeling, Jnr. www.livetradingnews.com
