Oil prices declined yesterday as the US dollar strengthened and concerns about tensions in Libya eased as allied forces made more progress against Qaddafi's troops. The front-month contract for WTI crude oil prices slipped to a 4-day low of 102.1 before settling at 104.97, down -0.41%, while the equivalent Brent crude contract ended the day at 114.8, down -0.68%. Both contracts extended weakness in Asian session. Taking oil's cue, gold also plunged to 1410.1, the lowest level since March 18, before closing at 1419.9, down -0.44%. The rise in core PCE in February signaled inflation momentum in the US has been lifted. The Fed may cautious consider its monetary stance in coming months.
The rebels advanced into western Libya as helped by the allies while the UK and France urged Qaddafi to 'go immediately'. In a joint letter, UK Prime Minister David Cameron and French President Nicolas Sarkozy Qaddafi's supporters should 'leave him before it is too late'. All Libyans who 'believe Qaddafi is leading Libya into a disaster to take the initiative now to organize a transition process'. Meanwhile, Qatar announced it recognizes the Interim National Transitional Council as the legitimate government of Libya. Opposition parties told Financial Times that they could boost production to about 400K bpd in a few days if they had a mechanism to sell the oil. Qatar's recognition may help facilitate the sale of oil on the international markets.
Elsewhere in the Middle East, talks of the departure of Yemen's President Ali Abdullah Saleh stalled while Syrian security forces were reported of attacking protesters in Daraa.
US data released yesterday came in better than expected. Personal spending rose +0.7% m/m in February, the best result since October, while January's reading was revised up to +0.3%. Personal income climbed +0.3% on monthly basis. The savings rate dipped to 5.8% in February from 6.1% in the prior month. The core PCE deflation gained +0.2% m/m in February, lifting the annual inflation rate to +0.9%. The chart below shows that inflation momentum has picked up in recent months.
Gold appears to be more reactive to the rise in inflation pressures in the Eurozone than that in the US. We believe this is due to different monetary stances in the ECB and the Fed. The ECB is an inflation-targeter and policymakers have stated a rake hike is imminent in as soon as April. President Trichet signaled that inflation rates have stayed 'durably above the common definition of price stability in the Eurozone'. By contrast, the Fed views recent upward pressure on inflation as 'transitory' and they are likely tolerate higher price levels for some time before adopting tightening.
