The standoff continues between President Obama and the Republican led
Congress over a deal to raise the debt ceiling. If they, beggaring
belief, fail to reach an agreement to raise the government’s borrowing
limit, the major ratings agencies have said they could downgrade the AAA
credit rating that the U.S. currently holds. Such a move could raise
the cost of borrowing and slow an already fragile economic recovery,
highlighted by nasty U.S. growth data, and thereby reduce demand for
energy by the world’s largest consumers.
A failure would trigger a spike in volatility and disrupt financial
markets. These concerns were raised by fourteen of Wall Street’s leading
CEO’s on Thursday who wrote to President Obama and Congress warning
them of “very grave” consequences of a default and urging them to sort
out a deal.
Meanwhile in Europe fiscal worries continue as the market fears that
the Greek disease could still spread despite politicians’ best efforts
to prevent this. Italy auctioned bonds this week at a very high cost and
has seen its spread over German bonds rise above levels seen prior to
the agreed Eurozone bail-out plan for Greece. Added to this, ratings
agency Moody’s warned about a possible downgrade of Spain’s credit
rating.
A month of two halves for commodity performance
Commodities spent the first half of July recovering strongly from the sell off that occurred during May and June. The last half however has been overshadowed by macro-economic concerns with the above mentioned fiscal worries in the U.S. and Europe having caused markets to trade sideways apart from safe haven investments such as gold and silver. As a consequence the Reuters Jefferies CRB index showed the first, but relative small, positive monthly return since April.
Commodities spent the first half of July recovering strongly from the sell off that occurred during May and June. The last half however has been overshadowed by macro-economic concerns with the above mentioned fiscal worries in the U.S. and Europe having caused markets to trade sideways apart from safe haven investments such as gold and silver. As a consequence the Reuters Jefferies CRB index showed the first, but relative small, positive monthly return since April.
U.S. oil demand reduced
The price of WTI crude briefly traded above 100 dollars before being knocked down with further losses following a surprisingly high increase in U.S. oil inventories. Imports of crude and gasoline into the U.S. appear to have fallen to the lowest levels in years, according to the Lloyd’s list. Whether this is a signal that demand is waning or it is caused by the release of 30 million barrels from its strategic reserves remains to be seen. The Energy Department has just begun delivering this oil with less than one third hitting the market in July and the remainder during expected during August.
The price of WTI crude briefly traded above 100 dollars before being knocked down with further losses following a surprisingly high increase in U.S. oil inventories. Imports of crude and gasoline into the U.S. appear to have fallen to the lowest levels in years, according to the Lloyd’s list. Whether this is a signal that demand is waning or it is caused by the release of 30 million barrels from its strategic reserves remains to be seen. The Energy Department has just begun delivering this oil with less than one third hitting the market in July and the remainder during expected during August.
WTI crude remains stuck in its July range between 94 and 100 dollars
as macro economic developments either side of the Atlantic continues to
be the main focal point. In Brent crude the trading remains confided to
the 115 to 120 dollar range for now. The spread between the two
varieties has moved back above 20 dollars following an injection of
430,000 barrels into Cushing, the delivery hub for WTI crude.
Impacts from hurricane season
The first four tropical storms of this year’s hurricane season so far have highlighted the risk to production and refineries in and along the Mexican Gulf. This week the price of Gulf of Mexico crude called Louisiana Light Sweet rose to a premium of nearly 22 dollars over WTI crude as tropical storm Don entered the Gulf carrying winds that forced companies to evacuate staff from oil rigs and temporarily shut down production.
The first four tropical storms of this year’s hurricane season so far have highlighted the risk to production and refineries in and along the Mexican Gulf. This week the price of Gulf of Mexico crude called Louisiana Light Sweet rose to a premium of nearly 22 dollars over WTI crude as tropical storm Don entered the Gulf carrying winds that forced companies to evacuate staff from oil rigs and temporarily shut down production.
The US National Oceanic and Atmospheric Administration NOAA have
predicted 3-6 major hurricane storms this coming season. In order to
cause any disruption they first of all have to come to fruition and
secondly have to hit the Gulf leaving enough unknowns for the market to
avoid pricing in the potential risk. Natural gas which in previous years
use to see increased volatility shrugged off the news about Don and
dropped 4% on the week as traders scaled back positions on the back of
higher than expected weekly storage data.
Tricky week ahead for precious metals
Gold extended its recent gains and spent the week consolidating above USD 1,600. Silver meanwhile has been struggling to get a foothold above 40 dollars and has underperformed on a relative basis. Being one of the top performers during July investors have been taking some profits as the May sell-off is holding back investors from building up large scale positions similar to ones seen during the first quarter of 2011.
Tricky week ahead for precious metals
Gold extended its recent gains and spent the week consolidating above USD 1,600. Silver meanwhile has been struggling to get a foothold above 40 dollars and has underperformed on a relative basis. Being one of the top performers during July investors have been taking some profits as the May sell-off is holding back investors from building up large scale positions similar to ones seen during the first quarter of 2011.
Gold and silver will be facing a tricky week with pressure mounting
for some kind of result from the U.S. debt ceiling negotiations. Short
term a satisfactory outcome could remove some of the recent support,
especially considering the chance of the dollar strengthening as a
consequence. Should gold manage to break below USD 1,600 it could
trigger a move towards the next support which can be found in a band
between USD 1,555 and 1,575.
Agricultural markets also had a quiet week continuing a sideways trading
pattern while waiting for further clues about the potential size of the
upcoming harvest. The adverse weather which had been supporting prices
up to now seems to have normalised with rain across dry areas helping
crops prosper.
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