WTI crude oil rebounded as the 4-day decline last week had brought price to as low as 72.45 on Friday. At current price level (73.9), WTI crude has erased the gains made on speculations of a prolonged closure of the Enbridge pipeline 6A and should price this week should be more reflective of macroeconomic and fundamental outlooks. Note that one of the aftermaths of the closure is that the inventory level of district PADD II (Midwest) will be affected.
Weakness in USD also increased the appeal of buying crude oil. While US CPI, growing +0.3% m/m and +1.1% y/y in August, met market expectations, core CPI stayed flat during the market, compared with consensus +0.1%. Moreover, University of Michigan Confidence Index fell to 66.6 (consensus: 69.8) in September from 68.9 in August. The market expectations index slipped -3.8 points to an 18-mth low while the 1-year inflation expectation eases to +2.2%. The data was disappointing and intensified speculations that the Fed will expand the asset buying program later in the year.
Hurricane Igor remained a threat in the near-term as the National Hurricane Center said Igor, while downgraded to a Category 2 storm on the 5-step scale, remains a 'very large' and 'dangerous' weather system, with little change in strength forecast over the next 48 hours. While there may not be reports on suspension of refinery operations because of Hurricane Igor, its strength reminds investors of the disastrous damage on oil facilities can be caused during peak hurricane season
Gold remained firm in Asia Monday after rallying to a record high of 1284.4 last week. Apart from dollar's weakness and heightened possibility of the Fed to extend QE measures, renewed bank concerns in Ireland also triggered demand for safe-haven assets. CDS on Irish bond spreads surged and spreads between Irish-German bonds widened after a Barclays' report saying that the country may need to seek outside help if there are additional financial-sector losses or the economy worsens. Meanwhile, John Gormley, leader of Ireland's Green Party and a member of the ruling coalition, said spreads would widen should Ireland consider renegotiating with Anglo Irish Bank Corp. bondholders. The plan was suggested by the opposition party.
The market's focus is on NAHB Housing Market Index which probably climbed to 14 in September from 13, the lowest level since 1Q09 in the prior month. The Fed will also hold the FOMC meeting this week but we do not expect any change in monetary policy this time.
Commitments of Trades:
Speculators turned bullish on the energy complex in the week ended September 14 as equities strengthened and the Enbridge pipeline was close due to a leak. Net length for crude oil increased for the first time in 4 weeks, by +37 848, to 48 337 contracts while that for heating oil and gasoline rose 6 327 and 9 395 to 10 819 contracts and 30 865 contracts respectively. Net shorts for natural gas added +5 021 to 178 630 contracts despite worries about hurricanes.
Net lengths for precious metals climbed for another week as global economic uncertainty persisted. Net length for gold increased +4 564 to 244 261 contracts while that for silver soared 1 588 to 48 791 contracts. For PGMs, net length for platinum rose +3 458 to 19 913 contracts while that for palladium climbed +222 to 14 329 contracts. Both were the highest level since May 2010.
