Wednesday, October 13, 2010

Phil Flynn: Can Rising Commodity Prices Derail QE 2?

The odds of quantitative easing continues to go up almost as fast as corn prices as the Fed Minutes confirmed that the Fed is getting ready to run the printing presses. The FOMC is worried that, “the recent and anticipated progress toward meeting the Committee’s mandate of maximum employment and price stability to be unsatisfactory”.

The Fed says that economic data had been mixed, with readings early in the period generally weaker than anticipated but the more recent data coming in on the strong side of expectations. So, “in light of the considerable uncertainty about the current trajectory for the economy, some members saw merit in accumulating further information before reaching a decision about providing additional monetary stimulus” But that they would consider it appropriate to take action soon.”

How soon? While the Fed is talking about more purchases of securities, European Central Bank Governing Council member Axel Weber is talking about an exit stagy. He said that the European Central Bank should stop its bond purchase program while our Fed is talking about stepping it up thus creating the potential for a larger wedge between the Euro and the dollar and a continuing spike in commodity prices......Read the entire article.


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Crude Surges amid Demand Upgrades, China Imports Reach Record High

Crude oil strengthened further in European session as both the International Energy Agency (IEA) and the OPEC raised their forecasts on global oil demand as global economic recovery provides support for oil consumption. Also supporting oil prices was China's trade data in September. Strong imports for crude oil indicate resilience in domestic demand. WTI crude oil price soared to 82.9, up from yesterday's close of 81.67. Gold crawled above 1360 in European session as renewed selling pressure in USD raised demand for safe haven. GFMS forecasts the metal to reach 1400 by the end of the, citing low interest rates, the European sovereign debt crisis and fears about an economic slowdown factors supporting prices.

The IEA raised its global oil demand outlook to 86.9M bpd in 2010 and 88.2M bpd in 2011. That's +0.3M bpd more than last month's forecast for both those years. According the agency, the upgrades were driven by signs that 'the underlying demand trend in the OECD is more resilient than previously thought'. On the supply side, non-OPEC supply will increase to 52.6M bpd in 2010 (unchanged from August's estimates) from 51.5M bpd in 2009, followed by a rise to 53.1M bpd in 2010 (August: 52.9M bpd). Call on OPEC will be around 28.3M bpd (August: 28.8M bpd) in 2010 and 29.3M in 2011 (August: 29.3M bpd).

At an OPEC report released yesterday, the cartel also raised its demand forecast for 2010 to 85.6M bpd (August: 85.5Mbpd) while keeping that for 2011 unchanged at 86.6M bps. The 'stronger-than-expected, stimulus-led economic growth in the first half of the year' was the key reason for the upgrade. Non-OPEC supplies are revised higher for both 2010 and 10 as driven by growth in Brazil, Canada, Azerbaijan, and Kazakhsta. In contrast with the IEA, the OPEC revised lower the demand for the cartel's production for 2011 to 28.8M bpd from 28.9. The cartel forecasts demand for its production would be around 28.6M bpd for 2010 and 28.8M bpd for 2011. The estimate for 2010 represents a mild drop from August's reading.

The China trade report showed that export growth slowed to +25.1% in September from +34.4% in August, import growth slowed to +24.1% from +35.2% while trade surplus narrowed to $16.9B from $20B. The market was not disappointed by the slowdown but viewed it as a result of strong base effect last year. Imports for crude oil surged to 23.29M metric tons (2.69M bpd), up +35.4% and +11.4% on annual and monthly basis respectively. The record-high imports for crude oil signals the country's robust demand for the commodity.

Base metals rallied despite decline in imports from China. Rather investors were thrilled by the prospect that the market will be 'tighter' next year. LME copper surged to a 27-month high while lead also rose to the highest level in 6 months. Chile's Codelco, the world's biggest copper producer, expects a 'tighter' market next year as 'China is continuing to have a strong demand and from the supply side we have only a couple of new projects coming on- stream'. In September, China imported 368410 tons of unwrought copper and copper products (-7.68% y/y and -2.93% m/m) and 65772 metric tons of unwrought aluminum and aluminum products (-66.42% y/y and -9.44% m/m).

Courtesy Oil N'Gold .Com



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Bob Lang: Markets, the Fed, and Metals

From Bob Lang at Big Trends ETF Tradr.......

Market Noise is Deafening
When we don't know what to do or where to go, we ask someone. The obvious path is not so any longer and we need direction. Well, in the markets we're now at that critical juncture. Much like the 'advice' that was given in fall 2008, bargains of a lifetime, 'you have to be in this market', long term it makes sense, etc, only to have markets fall another 50% into the spring of 2009. Was that advice we needed to follow? Today, the word on the 'street is 'how far this rally can go, and should I stay or get on the sidelines'. Naturally, market sages will tell you to stay the course if you're invested, they want you all in at all times. Yet with all the noise and distractions around can we afford to make the one decision that could lead to a setback? The LESS we listen to media accounts, hurray the Dow hit 11,000 again, let's have a party, the better off we'll be. It'll be all over the place now and louder than ever! This type of 'workplace noise' can be hazardous, a news story the other evening stated that those prone to noise at work are more likely to have a stroke, heart attack or high blood pressure. Let the market tell you WHEN to should exit, remain or re-enter.

What's All this Fed Talk About?
We've heard quite a bit lately about this Fed game called QE2. To be sure, they are playing upon our positive expectations at the end of the game. The hope is that this program will help spur some economic activity, inflation and move people back to work. But, what is QE2, and did what did QE1 accomplish? Simply put, QE is quantitative easing, implemented when the Fed has no more additional room to cut short-term rates to stimulate the economy. Basically, cutting borrowing rates has failed to control the money supply. By definition, QE is upping the supply of money by increasing excess reserves of the banking system, expanding their balance sheet. By purchasing government assets and other bonds in the open market they give banks excess reserves required to create new money. Hopefully the banks will use this extra money to lend out to borrowers, thereby stimulating activity. Many argue this is the wrong approach, creating dollars. To be certain, QE measures have had mixed results and there is not a direct correlation to creating new jobs, which seems to be the big issue of today. Back in early 2009 the Fed implemented the first round of QE and while it improved growth a bit, the desired effect and length lagged badly. In fact, the economy recently fell into a 'soft patch', enough warning for the Fed to jump to the fore with their new easing plan. Is that a pattern we'll see develop over time?


Metals are sure Precious!
New highs again for gold, new multiyear highs for silver. Haven't seen such a blistering move on a commodity since crude oil went parabolic in 2008. Do we know the reasons for this parabolic rise, or do we 'think' we know the reasons. By all accounts it seems everyone is talking about the metals these days. Heck, there are four new gold shops that popped up in my town over the last several months, and on every other street corner is a guy holding a sign that says 'will buy your gold'. The fever pitch is reaching that of the miner 49ers over 160 yrs ago! Can it last? Sure, any bubble move can keep going until every last one gets in and then POP! I'm not calling for this, but certainly the reasons for buying gold are consistent with past bubbles, oil, housing, tech, and biotech. Oh, I've participated, silver has been my choice, but if you fail to acknowledge what is happening around you then you'll get taken in by the hype. We choose to listen to what and whom we want that makes us feel good (read up top again about the noise factor). Being in a bubble and profiting is ok, in fact it's great as an options player, but knowing your exit is most important. Enjoy the ride while it lasts!


Check out Bob Lang's calls and articles at Big Trends.Com


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Crude Oil Technical Outlook For Wednesday Morning Oct. 13th

Crude oil was higher overnight and appears poised to renew the rally off August's low. At the same time, stochastics and the RSI are overbought and are turning bearish signaling that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 78.93 would confirm that a short term top has been posted. If November renews the rally off last week's low, the 62% retracement level of May's decline crossing at 84.65 is the next upside target.

First resistance is last Wednesday's high crossing at 84.09
Second resistance is the 62% retracement level of May's decline crossing at 84.65

Crude oil pivot point for Wednesday morning is 81.63

First support is the 10 day moving average crossing at 81.99
Second support is the 20 day moving average crossing at 78.93


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Tuesday, October 12, 2010

Commodity Corner: Crude Falls on Fed's Release of Minutes

Light, sweet crude settled lower Tuesday after the record of a recent Federal Reserve meeting failed to meet traders' expectations. Oil futures for November delivery settled 54 cents lower Tuesday at $81.67 a barrel after Fed policymakers released details of their September meeting. The minutes of the meeting indicated that several board members believed additional steps might be needed for the struggling economy.

The dollar gave up earlier gains on release of the meeting minutes. The drop came too late in the trading session to help crude prices. Analysts anticipate the dollar will fall lower if the Fed purchases government securities next month. Meanwhile, the euro and stocks rebounded following the Fed's minutes. NASDAQ and S&P 500 were up slightly, while the Dow Jones Industrial Average increased by nearly 30 points in afternoon trading.

Earlier Tuesday, crude fell on speculation that the Organization of Petroleum Exporting Countries (OPEC) will leave production quotas unchanged. Investors moved to lock in profits ahead of the OPEC meeting, which is set to take later this week. The intraday range for crude futures was $80.88 to $82.33 Tuesday.

Natural gas futures rose 2.8 cents Tuesday as traders were reluctant to bet prices would fall with the upcoming winter's gas heating demand. Henry Hub natural gas settled at $2.63 per thousand cubic feet after fluctuating between $3.55 and $3.67. Reformulated gasoline blendstock, or RBOB, ended Tuesday's trading session 1.9% lower, at $2.12 a gallon. Gasoline prices peaked at $2.16 and bottomed out at $2.12 Tuesday.

Courtesy Rigzone.Com

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Sharon Epperson: Where is Crude Oil and Gold Headed on Wednesday

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil and gold are likely headed tomorrow.



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Stock Market and Commodities Commentary For Tuesday Evening Oct. 12th

The U.S. stock indexes closed firmer again today in quieter trading. The stock index bulls still have the overall near term technical advantage as uptrends are in place on the daily bar charts. However, the uptrends have turned into more sideways price action recently, which is likely to continue in the near term. Stock index bulls have been very pleased with price action so far this autumn, a time which is normally not favorable to market bulls.

Crude oil closed down $0.56 at $81.65 a barrel today. Prices closed near mid-range today and saw more profit taking from recent gains. A firmer U.S. dollar index also put light pressure on crude today. Prices are still in a six week old uptrend on the daily bar chart.

Natural gas closed up 4.6 cents at $3.647 today. Prices closed near the session high today after hitting a fresh contract low early on. Tepid short covering in a bear market was featured. The bears still have the solid overall near term technical advantage.

Gold futures closed down $6.00 at $1,348.40 today. Prices today closed near mid-range and saw profit taking. A firmer U.S. dollar index also slightly weighed on the precious yellow metal today. The gold bulls still have the solid overall near term technical advantage. Prices are in a 2 1/2 month old uptrend on the daily bar chart.

The U.S. dollar index closed down 11 points at 77.54 today. Prices closed near the session low today. Bears still have the solid overall near term technical advantage. There are still no early clues to suggest a market bottom is close at hand.



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Crude Oil Falls Ahead Of Fed Minutes

Crude futures fell Tuesday as investors grew nervous ahead of the release of minutes from the Federal Reserve that could offer clues on the central bank's plans to stimulate the economy. Light, sweet crude for November delivery recently traded 74 cents, or 0.9%, lower at $81.47 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 56 cents lower at $83.16 a barrel. The minutes of the Federal Open Market Committee's Sept. 21 meeting, due for release at 2 p.m. EDT, will be closely watched for any signals on how the central bank may restart a Treasury buying program, known as quantitative easing, in an effort to revive the slowing economic recovery.

But after a rally above $84 a barrel last week, oil traders are wary about how the central bank will decide to act, and how it will influence oil and the financial markets that crude has closely followed in recent months. "We've put this quantitative easing premium in the marketplace, and now people are a little worried about the size of it," said Phil Flynn, an analyst with PFG Best, which tracks the market. He said traders are selling to lock in profits.

The euro is also falling against the dollar, and was recently down 0.3% to $1.3828. A weaker dollar makes oil cheaper for buyers in other currencies, and its recent decline to 8 month lows against the euro has been a primary factor in crude's most recent surge. Equities markets are also trading lower, with the Dow Jones Industrial Average recently down 55 points to 10954. "Another day, another dollar," said Gene McGillian, a broker and analyst with Tradition Energy, summing up the motivation for crude's price move.

The Organization of Petroleum Exporting Countries on Tuesday revised up its forecast for global oil demand growth this year, encouraged by stimulus-led economic growth in the first half of 2010. OPEC upgraded its forecast for world oil demand growth by 100,000 barrels a day to 1.13 million barrels a day, and its non OPEC supply forecast for 2010 was also increased by 100,000 barrels a day to 1.01 million barrels a day. OPEC is expected to keep quotas unchanged when the group meets Thursday, though some member countries have said prices should move higher due to the weakening dollar.

Despite U.S. inventories of oil and fuel products that hit 27 year highs last month, economic data and moves in the dollar have trumped worries about oil supply and demand. U.S. crude oil stocks are expected to rise in a report due Thursday from the Department of Energy, according to a Dow Jones Newswires survey of analysts. Crude stocks are seen increasing by 1.2 million barrels, according to data covering the week ended Oct. 8.

Meanwhile, France was hit by a nationwide strike against pension reform, and the industrial dispute that has closed the Fos-Lavera oil terminal, the world's third largest oil port, entered its 16th day. The Marseille port authority said 85 ships have been affected, of which 56 are oil tankers. Front month November reformulated gasoline blendstock, or RBOB, recently traded 3.41 cents, or 1.6%, lower at $2.1314 a gallon. November heating oil recently traded 1.97 cents lower at $2.2593 a gallon.

Courtesy of Wall Street Journal/Dow Jones Newswire


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White House Signals Deepwater Drilling Ban to End Soon

Top Obama administration officials signaled Tuesday that a moratorium on deepwater oil drilling could end "very soon," but it's unclear how quickly idled oil rigs could go back to work in the Gulf of Mexico. The Interior Department scheduled a 1 p.m. EDT news conference to discuss what it said would be an announcement on "the current suspensions on deepwater drilling." White House Press Secretary Robert Gibbs told reporters Tuesday that the Interior Department will lift its moratorium on deep water oil drilling in the Gulf of Mexico "very soon," likely this week. Asked if he was saying the ban will be lifted this week, Gibbs said: "I do."

But the government's top offshore drilling regulator, Michael Bromwich, separately told reporters during an event across town that it is unlikely companies could resume drilling immediately, even when the moratorium is lifted. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said his agency will need to time to carefully vet companies' applications to ensure they comply with new safety and environmental regulations established since the April 20 explosion of the Deepwater Horizon oil rig and the subsequent oil spill in the Gulf of Mexico. He emphasized that the pace of approvals will depend on......Read the entire article.


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Phil Flynn: QE2...Is It A Bounce Or Bust?

Surging retail gasoline prices and surging food costs! Cotton price going through the roof! Not to worry it is just the Fed here to help you. I do not know about the consumers but the farmers sure love the Fed. The Wall street Journal’s lead article is, "How the Farm Belt” is bouncing back in part based on strong Asian demand as the USDA projects net farm income to climb 24% this year to 77.1 billion dollar,s the fourth highest year on record.

Farmers are getting about 62% more for hogs than a year ago and 32% more for milk! That means for most Americans to feed their families costs are going up. The cost of filling their gas tank is going up as well. Gas prices have surged at the retail level almost 20 cents a gallon since the Federal Reserve said it wants inflation. Oh sure, the French refinery strike and the improved export picture for gasoline is part of the story, but in reality the spike in gas and the timing of the spike can be traced back directly to your friends at the Fed.

With friends like that you need policy makers. Since the Fed meeting we have seen the price of oil add over 11 dollars a barrel from peak to valley. RBOB gasoline futures went up from a low of 192 a gallon to as high as $2.20 a gallon and Heating oil hit as low as $2.11.14 a gallon to a high of $233.41 a gallon. Are you feeling the Fed's love now?......Read the entire article.


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