Commodity prices held up well earlier in the week but then
weakened towards the end. Several factors, including the ease in
economic data and talks of an imminent SPR release, and the tug
of war between renewed sovereign debt crisis in the Eurozone and
speculations of firewall expansion, were the main causes of the
price actions. Over the past week, investors were disappointed by
the slides in the preliminary PMIs in China and Europe, as well
as some of the regional surveys in the US. Strength in oil prices
over the past months was driven by worries over supply disruption
as the US sanctions against Iran tightened. However, the concerns
were readily eased after France indicated SPR release would come
soon. In the Eurozone, concerns over the sovereign crisis in the
Eurozone re-emerged as uncertainties were seen in Spain, Greece
and Ireland. Yet, expectations that EU finance ministers would
expand the firewall for future bailouts lifted sentiment
somehow.
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The front-month contract for WTI crude oil plunged -3.60% to
103.02 during the week while the equivalent Brent crude contract
lost -1.80%. Yet both contract managed to record gains for a
second consecutive quarter. Crude oil prices slumped sine the
middle of the week as talks of SPR release intensified. French
Prime Minister Francois Fillon stated that prospects are 'good'
for a US-Europe agreement on a release from strategic reserves
while the White House attempted to downplay the plan by stating
only that the option 'remains on the table'. Yet, as talks of a
release have been intensified, it appeared that policymakers are
pressured to do something regarding this. However, we doubt if
oil prices would be further affected should policymakers announce
a release as recent decline in prices has almost reflected the
increase in oil supplies. We believe that unless there is a huge
surprise the amount of quantity released, further sustainable
lower oil prices would be difficult to achieve.
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The DOE/EIA reported that gas inventory increased +57 bcf to 2
437 bcf in the week ended March 123. Stocks were +816 bcf above
the same period last year and +900 bcf, or +58.6%, above the
5-year average of 1 537 bcf. Separately, Baker Hughes reported
that the number of gas rigs added +6 units to 658 in the week
ended March 29. Oil rigs rose +5 units to 1 318 and miscellaneous
rigs stayed unchanged at 3 unitd, sending the total number of
rigs to 1 979 units. Directionally oriented combined oil, gas,
and miscellaneous rigs climbed +2 units to 233 while horizontal
rigs increased -6 units to 1 180 and vertical rigs gained +3
units to 566 during the week.
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The precious metal complex was pressured during the week.
Although gold, silver the platinum recorded weekly gains, their
outlooks are uncertain and downsides risks remained. Palladium
has indeed plummeted to the lowest level since January. Concerns
over demand, in particular a potential slowdown in China, were
key factors affecting prices of silver and PGMs. Gold's movement
has been highly affected by expectations of QE3. The yellow metal
got dumped over the past weeks as hopes of QE3 dissipated. Yet,
the situation appeared to have changed a bit towards the end of
last week as the Fed chairman Ben Bernanke signaled further
easing is needed give further boost to the job market. His
comments have driven some analysts to anticipate further
accommodative measures to be announced in as soon as April.