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Commodity Prices Rebound As Fed Delivered More Optimistic Economic Outlook

Thu, Aug 13 2009, 05:22 GMT
by Oil N' Gold Team

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Crude oil price rose Wednesday despite a higher-than-expected increase in crude inventory. Comments from the Fed boosted stock markets and weighed on the dollar and these helped lift oil price. The benchmark contract climbed +1% to close at 70.16.

Inventory on crude rose +2.52 mmb to 352 mmb in the week ended August 7 as refinery runs dropped while imports from Gulf Coast rebounded. PADD II inventories rose to the highest levels since 1990. Produce demand remained weak with gasoline and distillate demand declining -3.1% yoy and -21% yoy on 4-week average. This was the main reading for the lower-than-expected draw in gasoline stockpile and increase in distillate stockpile.

The Fed announced to keep the Fed funds rate unchanged at 0-0.25% and suggested that 'economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period'. Moreover, the Fed stated that economic outlook has improved. 'Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks'.

Reiteration to keep interest rate low for a long time curbed speculations on rate hike later this year or early next year. This halted USD's rebound. On the other hand, better economic outlook further boosted market sentiment and investors continued to shift capitals for risky assets.

US stock markets rallied with Dow Jones Industrial Average rose +1.3% to 9362 and S&P 500 Index gained +1.47% to 1998.7. In Europe, UK's FTSE 100 Index added +0.97% to 4716.8. Germany's DAX and France's CAC 40 also climbed +1.2% and 1.48%, respectively.

In Asia, china's Shanghai Composite Index is the only regional index then drops. The MSCI Asia Pacific Index rises +1.6% while Japan's Nikkei 225 Stock Average gains +1%. Stocks are buoyed as the Fed said recession is easing.

Gold price recovered as USD weakened. The benchmark contract for the yellow metal edged +0.5% higher to settle at 952.5. Silver futures also jumped +1.7% to close at 14.59. However, downside risk for gold remains in the near-term. Increase in risk appetite will probably drive capitals out of gold ETFs to higher yield investments. Moreover, with price trading below 960, further correction to 920-940 cannot be ruled out.

Published on  Thu, Aug 13 2009, 05:22 GMT

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