WTI crude oil for November delivery traded lower today after making a $9.5 rebound to 102.84 (held below 103.22 support turned resistance) earlier. Currently traded at 98.72, outlook for the oil price is mixed but 93.36 low should act as support should oil extends weakness. Low turnover increased volatility. Investors are waiting for the result of the 'new' bailout plan will be put on vote tonight and EIA's report on weekly petroleum inventory.
The Senate revised the bill by adding tax breaks for businesses and the middle class as well as increasing deposit insurance. With these provisions, there's higher chance of getting a pass. Nonetheless, the plan is expected to slow down the pace of recession and temporarily boost sentiment. Investors are still lingered with concerns in declining economic growth and oil demand.
ISM manufacturing index fell to 43.5 in September, down from the August reading of 49.9. The figure came in lower than market expectation of 49.5, signaling economy in US shrinks faster than forecast.
At 10:30 EST, EIA released stockpile data as of Sep 26. As expected inventories rebounded due to the return of refining activities after Hurricane Ike and depressed demand. Oil and gasoline stockpiles rose by 4.3 mmb and 0.9mmb respectively while inventory for distillates dropped by 2.4mmb.Both of oil and gasoline’s stock builds surprised on the upside.
MF Global expected a 3 mmb increase in crude supplies while gasoline and distillates inventory would have fallen by 3.6 mmb and 1.1 mmb respectively. However, Platts, an energy information provider, saw either a 1.5mmb increase or decrease in oil stockpile while both of gasoline and distillates would have down by 1-3 mmb.
Started in US, slowdown in economy has been spreading around the world. Recently we see reduction in oil consumption in India and Japan, a Barclays' report stated that in India, sales in oil products reach the lowest in August. In Japan, sales also dropped by 8.4%.
Gold's performance somehow let us down. Despite the break above 926 Monday, subsequent retreat indicated range-trading from 932 to 828.5 is still in progress. Currently trading at 887, gold recovered some of yesterday's loss albeit dollar's strength.
USD continued to strengthen against Euro and Sterling in US morning. Trading 1.3999 against the single currency and 1.7666 against pound, the dollar regained most of the loss since the collapse of Lehman Brothers.
Our view to gold is cautiously bullish and we believe the precious metal's safe-haven appeal still exists as long as global economic outlook remains uncertain. Recently, demand on physical gold has increased dramatically. Jeremy Charles, chairman of London Bullion Market Association said that gold refineries can't make enough bars to keep up with demand from investors.
Even if US bailout plan has been passed, recession seems to be unavoidable. Adding to the problem is huge government debt and aggressive rate cut would cause USD depreciation in long term. This helps gold's strength.
| Weekly change in inventory as of 26/9/08 | Actual | Market expectation | Previous |
| Crude oil | +4.3 mmb | +3 mmb | -1.5 mmb |
| Gasoline | -0.9 mmb | -3.6 mmb | -5.9 mmb |
| Distillate | -2.4 mmb | -1.1 mmb | -4.2 mmb |
EIA, Updated on Oct 1
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