18th November Oil and Gold overview
18th November 2009
Commodity Overview
Focus on Oil & Gold
Over the last five days we have seen oil continue to trade sideways, supported by ongoing equity strength. The gold market has continued to rally taking out recent highs at 1144.70 before topping out at 1148.40 yesterday.
Thoughts from the trading floor
Oil futures look technically bullish as they continue to form a bull flag whilst holding above the previous consolidation zone. Yesterday we saw prices close in on the downtrend which once broken would represent the flag break. Today the downtrend comes in at $79.89 and if the flag were to break the target would be around $97. To reach this target Oil would need to break its 50% Fib. level at $89.84, a price which is bound to provide significant resistance. Gold also appears technically very bullish as it continues to take out every daily resistance days after they form. As we are currently at unprecedented levels there is little obvious resistance, so a large overextension is on the cards.
Last night the American Petroleum Institute reported that US inventories fell 4367K barrels last week. This compares to the analysts estimate for the DOE number of a 300K barrel build. With such a large discrepancy between the two numbers we are likely to see a strong reaction to this weeks DOE numbers. With gasoline continuing to prove very important for oil prices it is worth noting analysts’ estimates for tomorrows gasoline number is -25k barrels.
With almost all commodities as well as equities and government bonds rallying analysts are asking the question “what is driving all prices higher?” as motives for purchase appear to be contradictory. Two credible answers are circulating; firstly buying is being funded buy an enormous carry trade against the USD. Secondly; that the enormous amount of stimulus injected by central banks has created a liquidity bubble forcing investors into a buying frenzy. Most likely is that a combination of these two scenarios are driving prices multiplying the significance of the USD and the Feds exit strategy.
Bull View
Oil bulls will be keen to see the daily bull flag break which could provide a catalyst for a large push higher. Gold bulls will be looking to CPI figures out later today to increase inflation concerns and provide them with another lift.
Bear View
Bears remain very much on the back foot in both the Oil and Gold markets. Oil bears main goal will be to prevent the bull flag breaking and will be looking for some USD strength to aid their cause.
Futex View
We believe that in the short term the best strategy is to simply go with the markets prevailing direction although in the medium term we believe these moves are not supported by fundamentals and may see a strong reversal.
