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Commodities And Stocks Rally, Risk Appetite Returns To Pre−crisis Level?

Tue, Jun 30 2009, 04:37 GMT
by Oil N' Gold Team

Oil N' Gold

Crude oil makes a new 8-month high and surges to as high as 73.38 in Asia morning as renewed geopolitical tensions in Nigeria and statement by some OPEC members spurred supply concerns. On Monday, the benchmark contract rose +3.4% to settle at 71.49. The nearly $4 hike from intraday low at 68.36 to intraday high 71.92 strong equity markets.

While many of us had thought that the turmoil in Nigeria has subsided as more as more militant leaders surrendered, the MEND yesterday announced another attack on oil installations - facilities feeding the Forcados export terminal. Shell said that it has suspended some oil production at Estuary Field for investigation of the attack.

Algeria's oil minister Chakib Khelil said that there's no need for OPEC to increase output at this stage as the market is still oversupplied. The nation produced 1.257M bpd in May, a reduction of around 0.15M bpd since the OPEC agreed to cure output by 4.2M bpd in September and the minister said it will probably be maintained for the rest of the year. This view was shared by Qatar minister who also believed the cartel is unlikely to raise output at September's meeting.

OPEC members have been tactical in using comments of this kind to control price. Clearly the OPEC would like to see oil price going higher rather than lower. However, they have concerns to cut output aggressively as many members' national revenues rely heavily on oil exports. Moreover, they do not want to be blamed by countries outside the cartel as too much of a hike in oil price will hurt economic growth, especially when the economy is fragile now. Earlier this month, Kuwait's oil minister said that OPEC may consider raising production if oil price reaches 100. This was then interpreted by some analysts that OPEC has raised the informal price target to 100, from 75.

Risk appetite seems to have come back again with the VIX, also known as 'fear index', falling below the level before Lehman's collapse last September. Stocks in the US and Europe rallied Monday. The Dow Jones Industrial Average and S&P 500 Index gained around +1% as investors believe the pace of economic contraction has moderated. While unemployment rate probably rose to 26-year high at 9.6% in June, the addition of 0.2 percentage point was the least since November 2008. In Asia, stocks jump with the MSCI Asia Pacific Index surges +1.6%. In Japan, Nikkei 225 Stock Average soars +1.9% to 9965 as household spending surprisingly rose in May. This news overshadows the anticipated rise in unemployment rate to 5.2%, the highest level in 5 years.

The dollar retreats as investors seek higher-yield investments. USD drops against the euro and the pound for the 4th and 3nd straight days, respectively although China's comment that it will not change the reserve policy suddenly alleviated concerns that the dollar's dominant reserve currency status is at risk. However, we believe we will hear countries, especially in the emerging world, will from time to time express their concerns over the safety of their USD-denominated assets and this will trigger selling pressure on USD.

The precious metal ended yesterday with mixed results. While gold for August delivery was almost flat at 940.7, silver dropped -1.3% to close at 13.95. Today, gold price edges higher at 942 while silver at 14.0 on dollar's weakness. Platinum price recovers to 1200 after plunging -1.4% to 1196.2. Industry data showed that global auto markets remain weak. In Japan, new car production contracted -41% yoy to 542282 units in May, after sliding -17% in April.

Published on  Tue, Jun 30 2009, 04:38 GMT