by Ole S Hansen
Markets returned to risk aversion this week after another disappointing US employment report. Stock markets and commodities lost some of their recent gains and the Greenback recovered.
Crude Oil had a rollercoaster of a week rallying above $73 early in the week on what turned out to be a rogue trader in London who during the overnight session on Tuesday drove Brent Crude up by more than $2 after having bought a reported 9.000 lots. WTI Crude followed suit and reached $73.38 before weekly storage data and employment report drove prices to a 5 week low.
The weekly DOE statistics received a negative reaction as demand for refined products looked awful, especially Gasoline showed higher stock levels once again. The 3:2:1 Crack spread has nearly halved in value since the middle of June putting refineries margins under some pressure. Weaker margins imply weaker crude demand going forward.
Technically we should now be looking to establish a new range on August WTI Crude at lower levels with Fibonacci support at $65 and $62.33 being the two interesting support levels. The dollar will as usual try to play its part and any attempt to reach the important support level at €1.3740 would put further pressure on dollar based commodities. Resistance can be found at $68.50 ahead of $70 and $73.
As mentioned above Gasoline stocks continued to climb with ample supply being met by hesitant U.S. drivers. News about driving patterns this three day weekend due Independence Day Holiday in the U.S. will be watched closely. Historically this is the high point of their driving season but it has fallen victim to the recession as more Americans decide to stay at home.
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Gold spent the week trading sideways as we continue to see investors buying into weakness while others reduced long positions whenever we traded above $940. Gold as mentioned recently has become a lackluster follower of market events elsewhere as inflation is still a long way off and other markets have shown better opportunities. We expect the focus to remain on the dollar and in the meantime look for support on August Gold at $922 and resistance at $950.
News that China may be coming to an end of their Iron Ore and Copper buying spree has so far not had any adverse impact on prices with September HG Copper this week managing to hold above support at $224. A break below should target $212 ahead of $200. The cost of transporting dry bulk round the Cape fell by 20% during the week indicating that the recent strong demand for shipments to especially China has begun to ease.
It was a very bad week for US Grain products with Corn and Wheat dropping by 11% and 6.5% respectively. This came after the USDA saw a surprise rise in the planted acreage in the US of those two grain types. September Wheat now trades close to the 2008 contract low at 5.22 a bushel with a break leaving the door open for further losses towards $5.00.
Soybeans continue to find support as strong export demand is drawing down already thin US inventories. Despite record planted acreage the market fears that it will not provide a comfortable cushion of new crop stocks. November Soybeans finished the week 1% higher at $10.00.
Finally on the grain sector it looks like we could have another emergence of El Nino, a weather pattern that brings drought conditions to south-east Asia. Australian officials see more than a 50% chance of El Nino this year. Products that could be impacted are Wheat, Sugar and Rice and wild gyrations in prices could be a result. The rally in Sugar recently has been due to disruption to India’s annual monsoon and this could be triggered by El Nino.
(Ole S Hansen is Futures Manager at Saxo Bank, Courtesy: Saxo Bank)
