The dollar rose +2.2% to 98.8 against Japanese and +1.5% to 1.397 against the euro Friday. 10-year government bond yield in the US soared to 3.8398% Friday from 3.715% in the prior day while the 2-year bond yield rallied to 1.2963% from during the day from 0.9626% Thursday.
As a normal inverse correlation between USD and commodity prices, the majority of commodities got hit on Friday though the Reuters/CRB Commodity Index remained largely unchanged at 257.92(-0.7% from Thursday). Over the week, the gauge added 2.1%, though.
Crude Oil
WTI crude oil
for July delivery spiked to 70.32 as soon as t
he US Labor Department reported that the decline in non-farm payroll was -345K, significantly better than consensu
s of -530K and -504K in the previous month. However, st
rong rebound in USD against major currencies snapped gains in oil, as well as other commodity prices, and the gauge finally closed the day at
6
8.38, -0.6%.
The black gold has experienced an eventful week with USD and market sentiment the major price drivers. Moving up in 3 out of 5 days, the crude oil gained 3.1% but it already meant a plunge to as low as 64.95 and then a breach of 70 to 70.32, a level
not seen after November 5, 2008.
Robust market sentiment has continued to overwhelm fundam
entals and pushed oil price higher. Earlier last week, large economies including China, the US, the Eurozone and the UK reported strong PMIs which stimulated confidence of earlier economic recovery. Although in the middle of the week, the US Energy Departmen
t caught the market by surprise with a +2.8 mmb increase in crude stockpiles. Pullback in price was short-lived. Not until the broad based strength in USD Friday did the commodity meet selling pressure.
Oil demand outlook remains mixed. While recovery has been seen in
emerging markets, weaknesses are still prominent in OECD countries such as US and Japan. We worry that recent rally in oil prices begin to hurt consumption as
retail gasoline prices in the US have increased by +20% mom. IEA executive director Nobuo Tanaka had warned that rapid rise in oil price may damage the outlook on economic recovery.
Concerning supply, survey showed that OPEC oil price rose in May while preliminary estimates by tanker trackers showed that another rise will be seen in June, indicating risk to disciplines of OPEC members. For non -OPEC producers, some have showed declines in oil outputs but the results were smaller than expected.
We continue to believe present oil price has soared to a level too high to be
justified by fundamentals. Although it's possible that future economic recovery will tighten oil markets, before we see more unambiguous signs from oil-specific data, we tend to stay cautious on oil price.
Natural Gas
Despite a 2-day selloff after rising to 4.284, gas price managed to rec
over and settle at 3.886, recording modest gain of +1.3% over the week. Friday's surge was driven by better-than-expected payroll data - recovery in economy implies higher demand for gas from industrial use and power generation.
Gas storage increased +124 bcf for the week ended May 29 to 2337 bcf, still over 20% above 5- year average. In a report published in mid-May, LNG imports to the US many soar 43% in 2009 as production plants begin operation overse
as. The import data confirmed that demand dropped not only from Asia but also other parts of the world including Europe. The report stated that the flows of LNG to th
e US will increase to around 500 bcf this year from 350 bcf in 2008.
Baker Hughes' report showed that the number of gas rigs slid to 700, the lowest since November 2002. Mind that although the number of rigs continued to declin
e, it's at a diminishing rate.
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