Baku, Azerbaijan, Nov. 3
Trend:
Precious metals recent run of gains was halted after the US Federal Reserve surprisingly put a December rate hike back on the table, Ole Hansen, Head of Commodity Strategy / Saxo Bank, said.
Crude oil managed to stabilize despite the continued focus on rising supply while natural gas was heading for a 13-year low and the biggest monthly loss this year. Industrial metals were the worst hit sector after livestock on Fed rate hike and China slowdown fears.
He said that the Federal Reserve's six-week countdown to a possible December rate hike will take up a lot market focus during the coming weeks and with this comes an intense scrutiny of incoming economic data during this period, not least the monthly job reports on November 6 and December 4. Additionally, the potential for the European Central Bank to release another quantitative easing bazooka on December 3 will further add to market uncertainty during this time.
Not least for currency traders speculating on the near-term direction of EURUSD, the world's most traded currency pair. Action from both central banks carries the potential for a stronger dollar into the new year and this will be add to the challenging environment for commodities already struggling with excess supply and production capacity.
Crude oil looking for the range
The weekly inventory report from US EIA triggered the biggest jump in eight weeks on Wednesday. For the first time in four weeks inventories rose less than expected while refinery demand picked up. The market was oversold following a 17% selloff during the past three weeks and that also helped trigger such a big reaction.
Gasoline outperformed crude oil as it received a boost from a surprisingly strong pickup in refinery demand and a bigger than expected fall in inventories. An earlier than expected turnaround from refineries will support prices as it helps remove some of the attention on booming crude inventories which remain more than 100 million barrels above the five-year average.
With oversupply and now the potential of an even stronger USD being the main focus, not least following the hawkish FOMC statement, the upside is currently being capped by a band of resistance between $46.75 and $47.75. At the same time the sharp correction from Tuesday's low could help define the bottom of the current trading range.
The pain of the current low oil prices is being felt across oil producing countries and energy companies. The IMF in its latest Regional Economic Outlook for the Middle East said that Saudi Arabia could run out of money by 2020 if current low prices are maintained. Many oil and gas companies in the US and Europe reported losses for the third quarter while capex continues to be cut.
There is no doubt that the current $43 to $50 price range is low enough to support the rebalancing process, not least in the US where production is currently running some 400,000 barrels below the recent peak. At the same time, however, it is also clear that as long as Opec members continue to increase production ahead of the expected pickup in exports from Iran next year this process is going to take time.