Crude oil price extends last week's +7.1% gain further in Asian Monday as driven by rally in stock prices. Currently trading at 68.65, the black gold's recent rise is approaching overbought territory and is doomed for a resumption of correction.

Asian stock market surges for the 10th consecutive day as investors anticipate better 2Q09 corporate earnings. The MSCI Asia Pacific Index adds +1.3% while Japan's Nikkei 225 Stock Average climbs ++1.75% to 10118 as analysts forecast the 3 largest brokerage firms, Nomura, Daiwa and Nikko, are likely to report net profit in 2Q09. We do not have much economic data to be released today. Therefore, the strong momentum is to be supported by earnings reports and sentiments.

We believe the recent rally in crude oil price is overextended as its not justified by fundamentals. Crude oil inventory declined -1.8 mmb to 343 mmb in the week ended July 17. Since June, stockpile has drawn 23.3 mmb in 7 weeks. However, the decline in crude oil inventory has gone to gasoline supply which has increased 13.7 mmb over the past 6 weeks. We worry that once reduction in margins cause refiners to trim production, surge in crude inventory will emerge again.

USD continues to trade near a 7-week low against the euro as economic data released last week (US home sales, UK retail sales, PMI) fueled confidence that recovery is on the way. Japanese yen also trades at 3-week low against Australian dollar. This suggests investors' risk appetite has improved and has shifted capitals from safe assets. The phenomenon had affected gold price whose August contract continues hovering below 960, despite USD's weakness and crude oil's rally. While we remain bullish in the yellow metal in the long term in light of the low interest rate and potentially high inflation environment, as substantially decline in the dollar and surge in investment demand are required for the precious metal's rally to materialize.

Commitments of Traders
  • Crude Oil: Net speculative long positions plunged -86% to 2218 contracts last week
  • Natural Gas: Net shorts trimmer modestly to 158K contracts. However, the trend is still bearish for natural gas as investors remained concerned about the huge gas storage.
  • Gold: Net speculative long positions rose to 173K contracts, the highest in 6 weeks
  • Silver: Contrary to gold futures, net speculative long positions for silver declined last week. However, should market sentiment remain robust, silver price should outperform gold as industrial demand for silver should pick up as economy recovers
  • Platinum: Net long positions recovered slightly to 9740 contracts last week