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Oil Price Falls As Supportive Factors Fade

Mon, Jun 29 2009, 04:07 GMT
by Oil N' Gold Team

Oil N' Gold

Crude oil price plunges as much as -1.2% to 68.36 in Asia Monday on dollar's rebound, surrender of more Nigerian militant leaders as well as ongoing worries about energy demand. At current price level, oil's price looks 'reasonable' if supported by constructive sentiment but unjustified from the viewpoints of fundamentals.

After plunging to almost a 2 weeks' low against the euro after China's repeated call for a new reserve currency, USD pares the loss and rises to 1.4009 today as the Governor of People's Bank of China, Zhou Xiaochuan said that the country will not change the reserve policy suddenly. Apart from the euro, the greenback also rises against the pound, Canadian dollar, Australian dollar and New Zealand dollar.

In Nigeria, the attack from the MEND, the most famous rebel group eased and Inspector-General of Police Mike Okiro said that more militants from MEND surrendered after the President declared amnesty the armed group. So far 5 of the leaders have given up the attack and surrendered the weapons. Others can still choose to accept rehabilitation until October 4. Since end of the May, the MEND has attacked oil facilities such as pipeline and oil fields in the Niger River Delta and international oil companies suffered the most were Shell, Chevron and Eni SpA. However, it was not until late last week than the tension in the African OPEC member spurred supply worries and boosted oil price.

Stocks add modestly in Asia. Nikkei 225 Stock Average climbs +0.4% to 9916 as Japan's industrial production rose +5.9% mom in May, the third consecutive month of increase. South Korea's Kospi and China's Shanghai Composite Index also edge higher.

Gold price retreats to 936.5 due to its inverse relationship with USD. In the medium term, the low interest rate environment and heavy fiscal deficit in the US will help push gold price higher. However, in the near-term, price may be under pressure as the dollar still trades relatively strongly and both investment and physical demand are sluggish.

• Crude Oil: Net speculative long positions rose again to 39K after an over 20K drop in the prior week
  
• Natural Gas: Net shorts in US natural gas climbed to another year-to-date peak as traders speculate price may drop further given poor fundamentals
  
• Gold: Net longs plunged for the second consecutive to the lowest level in 5 weeks
  
• Silver: Traders trimmed long positions on the net as price may remain in consolidation in coming weeks
  
• Platinum: Net long positions gained further after surpassing 9000 in the previous week

Published on  Mon, Jun 29 2009, 04:09 GMT