Weekly Fundamental Outlook for Energies and Metals - Crude is Prone to Head Lower As We Enter the Shoulder Season

ONG F
Written by Oil N' Gold | Sat Sep 26 09 11:57 ET

The themes directing commodity prices remained to be USD, macro economic outlook and equity markets.
The dollar index sank deeper earlier in the week as market sentiment continued to improve. Moreover, as US LIBOR has traded in a discount to Japan LIBOR, there's speculations that USD will replace Japanese yen as the currency for carry trades. However, the dollar index rebounded after falling to 76.05 after the Fed announced to keep the policy rate unchanged at 0-0.25% and slow down the pace of buying agency debts and MBS without changing the size. The dollar recovered further after major central banks decided to limit their liquidity provisions to the financial systems as economy recovers. This implies supply of USD will be reduced.

Stock markets trended lower last week with Dow Jones Industrial Average losing -1.6% while S&P 500 Index sliding -2.2%. Reuters/Jefferies CRB Index plunged -3.7% to 250.5.

Crude Oil
WTI crude oil price was weak most of the day on Friday and was dragged to as low at 65.05 before strong US existing home sales lifted price. The benchmark contract settled at 66.02, paring losses in previous 2 days. On weekly basis, crude oil price slid -8.4% and fell on 3 out of the past 5 trading days.

In the coming week, we believe there's chance for oil to weaken further. There is possibility for price break the lower level of the recent trading range of 65-75 toward 60. October is normally a shoulder season for energy consumption. However, price will be well-support as it approaches 60.

Geopolitical tension arose as Iran has been building a second plant for enriching uranium. In a letter sent to the United Nation's International Atomic Energy Agency (IAEA) on September 21, Iran stated that 'a new pilot fuel enrichment plant is under construction' and more information about the plant will be 'provided at an appropriate and due time'. US President Obama, President Sarkozy of France and Prime Minister Gordon Brown of Britain said that Iran's actions are 'threatening the stability and security' of the world.

Natural Gas
Natural gas price rose in the past 4 days and finished the week +5.5% higher at 3.985. Having surged for 3 consecutive weeks, gas price should have been bottomed at 2.5 in early September, at least in the medium term. Therefore, we believe recent strength in price is premature and a pullback will be seen in the coming week.

Precious Metals
Gold price plummeted to 985.5 before recovering amid renewed weakness in USD. The yellow metal ended the day with -0.7% loss at 991.6. The benchmark contract for gold fell -1.9% during the week, the first weekly decline since early August. Others in the precious metal complex also plunged with silver losing -6% and platinum dropping -3.7%.

Interestingly investors reacted negatively to the news that the Bundesbank, Germany's central bank, decided to limit its gold sales over the next 12 months to 6.5 metric tons.

Base metal prices trended generally lower last week as worries about rising inventory and declining China consumption continued to linger in the market. In fact, the rising inventory has been caused by reducing China imports. In coming months, prices will continue struggling until we see a pickup in demand. LME copper for 3 months' delivery ended the week -3% lower.

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