Weekly Overview (25.02 – 01.03.2013); Markets Poised for an Action-Packed Week Ahead

This week is set to be filled with interesting political and economic events which are likely to stir the financial markets. Particular attention will be drawn to the monthly US non-farm payroll report along with the unemployment rate, both due to be released by the US Department of Labor on Friday. This important economic data comes just a week after the two-day testimony by Fed’s Ben Bernanke, in which he zealously defended the asset-purchasing program for stimulating the US economy, which has been running for more than a year.

Most analysts expect that a positive data on Friday would give a new impetus to leading indices as well as record values for the blue chip US30, which closed on Friday at just about 100 points (14090) below its highest value ever reached – 14190.

Central bank meetings take place in the upcoming days in order to decide on their key interest rates, starting with Australia on Tuesday, followed by Canada on Wednesday; and Japan, the UK and the Eurozone, all set for Thursday. Investors will be kept in tension as poor economic data from the Eurozone intensified speculations about lowering the interest rate of the area, which will probably lead to a new decline in EUR/USD. In last week’s trading, the most popular currency pair lost 166 pips and closed at 1.3021, just above the critical support level of 1.30.

The political unrest surrounding elections in Italy, which took markets by surprised, will be another major topic that can move the charts. Three coalitions and a single party won first places in the elections; however, their almost equal results made it impossible to form a stable government. Following this political uncertainty, EUITALY40 lost 3.57% of its value last week and closed at 15,689 points.

Gold and silver ended the week with minimal losses. The yellow metal closed on Friday at $1,575 per troy ounce, or a 0.30% loss, while silver closed at $28.57 and a decrease by 0.68%.

A more serious downtrend was seen in oil futures. BrentCrude lost 3.16% over the last 5 days and was last quoted at $110.61 a barrel, while U.S. WTI0413 wiped out 2.64% of its value, ending the week at $90.92 a barrel.

Source: dfmarkets.co.uk

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Economic Events Weigh on Gold and Silver

Economic Events Weigh on Gold and Silver
Economic Events Weigh on Gold and Silver
Gold prices fell for fifth straight month in February, the longest run of monthly decline since 1997. This morning prices have rebound a bit adding 4.00 to trade at 1576.00 Traders expect gold to pare this initial gain as the metal has lost its appeal against the riskier assets. With the US “fiscal cliff” budget cuts in place and the world moving forward they will become a thing of the past quickly, just like the uncertainty over the Bank of Japan successor. Their mark will remain on precious metals as they continue their downtrend. Silver is following cues from gold to trade at 28.540 today.

Gold futures fell on Friday, ending at a fresh seven-month low on Comex, as a rebound in U.S. equities and signs of optimism among U.S. consumers pressured investor interest in gold. The brighter outlook was bolstered by a report showing U.S. consumers continued to spend in January, even after higher taxes reduced their take-home incomes.

Gold traders closely follow such data as consumer spending accounts for more than two-thirds of the U.S. economy. Early last week, the market attention was mainly on the hung parliament formed after the Italy election. Sentiment was also damped by Moody’s downgrade of UK’s triple A credit rating. Later in the week, investors’ risk appetite improved after Italy’s bond auctions and ECB President Draghi’s Assurance that the central bank would not exit monetary easing soon.

The euro is also expected to stay weak amid political deadlock in Italy and as the country moved closer to a new election. The euro is exchanging this morning at 1.3014. A likely strengthening dollar may keep gold under stress for this week. Investment sentiment is expected to remain weak for gold. After falling for nine straight sessions, holdings of the SPDR, the largest gold backed exchange traded funds, at present are at the lowest since early August 2012 at 1253.88 tons. The Gold spread for June-April has declined by 5.56% last week indicating demand for future is less. This should reflect into piling up of inventories at the COMEX warehouses.

From the economic data front, the eurozone investors’ confidence is likely to get weaken which would be another factor for the euro to decline. In absence of any such data releases from the US, speculators can expect gold to take cues from the euro and dollar movement.  European leaders demanded that euro members press on with budget cuts to end the debt crisis as Italy edged closer to a new election after an anti-austerity vote last week resulted in political deadlock.

China may hold off tightening monetary policy after growth in services and manufacturing weakened, underscoring challenges for the nation’s leaders as they open the annual session of parliament tomorrow. Expansion in industries including retailing, transportation and banking was the slowest in five months in Feb.

Payrolls probably grew in Feb, showing US employers were looking beyond the budget impasse in Washington as sales improved, economists said ahead of reports due this week. Another 160,000 workers were hired last month after employment rose by 157,000 in Jan, according to Bloomberg before a March 8 Labor Department report.

Weak Chinese Data and US Budget Cuts Weigh Down Crude Oil

Weak Chinese Data and US Budget Cuts Weigh Down Crude Oil
Weak Chinese Data and US Budget Cuts Weigh Down Crude Oil

U.S. crude oil slipped to trade at 91.72 down 34cents in Asian trading this morning, and is on track for a second straight week of losses, pressured by a weak outlook for demand as the U.S. economy faces renewed risks. The U.S. economy grew by just 0.1 percent in the fourth quarter, its slowest pace since the first quarter of 2011, as the military slashed spending and companies restocked their shelves less aggressively.

Crude oil futures declined pressured by strength in the US dollar; however losses were limited by a spate of an upbeat US economic data that helped provide a positive outlook for energy demand.

Brent crude oil fell to a 6-week low near $111 per barrel, capping a month-end sell-off that has seen prices fall by almost $8 in 2-weeks, as concerns have resurfaced about the global economy and strength in the demand.

A stronger dollar internationally due to uncertainty in eurozone also put pressure on crude prices. The government slightly revised upward its estimate of fourth-quarter U.S. economic growth. The U.S. economy grew at a 0.1 percent annual rate from October through December, the Commerce Department said. That’s the weakest performance in nearly two years. But economists believe a steady housing rebound, stronger hiring and solid spending by consumers and businesses are pushing economic growth higher in the current quarter. The Labor Department said Thursday that claims for unemployment benefits fell last week, adding to the improving economic atmosphere.

Traders can expect crude oil prices to go down as failures to avoid the spending cuts are likely to raise recessionary fears in US, pushing crude prices down. Yesterday to bills to stop the “sequestered” budget cuts failed to get support with US lawmakers leaving with no deal. The budget cuts were scheduled to take effect at midnight last evening and should have some effects in days to come. Durable goods orders tumbled this week, as US military spending dropped drastically over the past months.

This morning releases from China weighed in, the official government as well as the HSBC manufacturing PMI’s missed forecast, both showing a small decline in manufacturing but remaining in expansion territory.

Natural gas prices are likely to hold the upside. Front-month U.S. natural gas futures ended higher on Thursday, underpinned by a government report showing a weekly inventory withdrawal above market expectations. The U.S. Energy Information Administration report showed total domestic gas inventories fell last week by 171 billion cubic feet to 2.229 trillion cubic feet. Natural gas prices are expected to go up gaining support from utilities switching from coal to cheaper gas to generate power. However the upside can be limited due to moderate weather forecasts for the next week. Natural gas is trading at 3.492 adding 2 pips today.

“Sequestered” Budget Cuts Kick In Confusing Investors

"Sequestered" Budget Cuts Kick In Confusing InvestorsGold was flat on Friday morning after giving back earlier gains on Wednesday and Thursday, and was headed for a second straight week of declines, with a stronger dollar weighing on sentiment. Gold is trading at 1578.50 this morning. Yesterday gold prices closed lower to produce its longest string of monthly declines since 1996. Gold futures fell for the second straight session, suffering a fifth straight monthly loss.

The dollar index hovered near a six-month high hit in the previous session as risk appetite was hurt by political uncertainty in Italy and U.S. government spending cuts that are due to kick in. The U.S. dollar attracted safe-haven inflows, but that weighed on dollar-priced commodities. The dollar index, which measures the greenback against six major global currencies, traded at 81.959.

Political uncertainty in Italy and U.S. government spending cuts that are due to kick in. The U.S. dollar attracted safe-haven inflows, but that weighed on dollar-priced commodities. At a last ditch effort US lawmakers were unable to pass a bill to stop the “sequestered” budget cuts from taking effecting at midnight on March 1, 2013. The U.S. government is facing $85 billion in cuts across federal program on, absent a highly unlikely last-ditch deal, which could slow the U.S. and world economies. The U.S. economy barely grew in the fourth quarter as the military slashed spending and companies restocked their shelves with less gusto, but growth already appears to be picking up. The US GDP grew by 0.1% compared to a contraction of 0.1% compared to the previous quarter which again hurt gold’s safe haven appeal.

Gold futures slipped on the COMEX as dollar gained against the euro. Sentiment also was dampened after the US Federal Reserve Chairman Ben Bernanke hinted Wednesday that the central bank may review its exit strategy for easy monetary policies soon. The euro is trading at 1.3076 this morning.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,254.49 tons, as on Feb 28. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,638.84 tons, as on Feb 28.

Gold prices are expected to go further down as a stronger dollar and failed efforts to avoid the scheduled spending cuts can push prices down.

Copper closed with its biggest monthly drop since October, reinforcing the price declines seen across most commodity markets this month. Copper and other metals declined, after mixed data on the US economy and worries about scant demand from top consumer China as well as high inventories levels. LME inventories of copper increased by to a total of 446,700 tons, the highest since October 2011. Copper is trading at 3.5240 as industrial metals declined.

Silver is trading at 28.543 recovering from its tumble. With precious metals trading on the weak side and industrial metals declining, silver is likely to tumble today. Chinese data also missed the mark this morning with both the HSBC and the official PMI prints missing falling shy of expectations.

Crude Oil Tumbles On Chinese PMI Data

Crude Oil Tumbles On Chinese PMI Data
Crude Oil Tumbles On Chinese PMI Data
Crude oil closed on Monday with a marginal loss, pressured by an upside recovery in the US dollar and as a slowdown in Chinese manufacturing fed concerns over the energy demand. The US dollar soared in late trading after an upset in the Italian election turned markets upside down. Markets had been trading on a positive note, with little reaction to the Chinese data. Earlier in the day the HSBC manufacturing PMI printed below expectations. The data showed that the Chinese PMI remained in expansion territory at 50.40 but missed the mark, as expectations called for a release showing 52.40. Global crude oil prices traded higher initially before paring gains towards close. Renewed supply concerns stemming from Iran ahead of resumption of talks today between Iran and some western countries on Iran’s nuclear programme, following an eight-month lapse in negotiations, aided oil prices. West Texas Intermediate oil fell to the lowest level in seven weeks in electronic trading after the settlement as partial election results in Italy heightened concern that the euro-zone debt crisis may deepen.

China, the world’s second-biggest oil consumer after the U.S., and the engine for oil-demand growth, is sending mixed signals. China’s crude oil imports rose in January by a healthy 7.4% from a year earlier, but early indications show manufacturing activity dropped in February to a level that barely indicates a growing economy.

The day was light on news flow and eco data as the month draws to an end, focus quickly turned to the Italian elections as expect polls showed an upset. Silvio Berlusconi’s party had died 18 months ago with the resignation of Berlusconi as Prime Minister of Italy. Just a few months ago, Berlusconi pulled his support from Technocrat leader Mario Monti, pushing for new elections. Berlusconi threw his hat back in the ring. Markets never expected Berlusconi to make a dent against the highly favored center-left party. Polls had showed a clear decisive lead by the center-left as markets paid little attention. Monday afternoon exit polls showed an upset with Berlusconi’s party pulling close to the lead. This leaves Italian politics crippled bring the eurozone financial and debt crisis back to surface which send traders running from the euro. With more than two-thirds of the vote counted, the projections suggested the center left could have a slim lead in the race for the lower house of parliament. But no party or likely coalition appeared to be able to form a majority in the upper house or Senate.

As the US dollar gained, dollar denominated commodities tumbled along with the equities markets around the world. Crude oil declined and is trading this morning at 92.56 down 55 cents.

Natural gas rallied to a 5-week high on Monday, as near-term weather forecasts turned cooler, boosting demand expectations for the heating fuel. Natural gas is trading at 3.471 this morning on the flat side.

Gold Rebounds As Traders Buy On The Cheap

Gold Rebounds As Traders Buy On The Cheap
Gold Rebounds As Traders Buy On The Cheap

Gold on COMEX rose in early trade on bargain buying, but a firm dollar against the euro weighed on prices. Gold prices received support, as recent correction in prices has prompted Asian investors to increase physical purchases of the metal. Bullion is trading at 1582.70 adding close to $10.00 Monday morning as traders took advantage of weak prices to grab up the commodity.

Markets remain in a positive sentiment, but jitters over the Italian elections and the US “sequestered” budget cuts with the deadline looming closer as the month of February draws to a close.  Gold futures closed at their lowest level Friday since July and notched its second consecutive weekly loss, as a better US economic outlook and indications that the Federal Reserve may end its stimulus program prompted investors to buy riskier assets such as equities.  US Gold futures closed the week at $1580.4 an ounce, down by $29.90 or 1.86% for the week. Gold prices were also hurt after Fed minutes indicated that they would slow down or stop with their asset buying program well before the job market improves.

Strong equity markets in the beginning of the weak and positive German economic and business climate also dented gold’s safe haven appeal. Selling pressure has aggravated in the base metals complex, as concerns regarding metals demand in China is taking a toll on the sentiment. The complex is expected to trade lower today, as Chinese manufacturing activity expanded at a slower pace in February. HSBC preliminary PMI for February came in at 50.4, much lower than the prior reading of 52.3.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, stood at 1,280.67 tons, as on Feb 22. While silver holdings of ishares silver trust, the largest ETF backed by the metal, stood at 10,602.76 tons, as on Feb 22.

The dollar index edged up to 81.463, from 81.377 in late North American trading Thursday. This morning the US dollar is continuing to gain and weigh heavily on some of its crosses. The euro is trading flat to Friday’s close to start out the Asian week.

The ECB said banks will repay 61.1bn euros of the second of two crisis ECB 3-year loans they took a year ago, far below the 130bn euros in repayments expected by the market.

The euro zone will not return to growth until 2014, the European Commission said on Friday, reversing its prediction for an end to recession this year and blamed on lack of bank lending and record jobless for delay in the recovery.

Gold prices are expected to go down further as a stronger dollar internationally and fears of withdrawal of Fed’s stimulus package are likely to push prices down. Rhetoric from US lawmakers could cause market volatility as Republicans and Democrats do not seem to be able to come to terms as the postponed Fiscal Cliff edges closer.

Equity Markets Recap

Equity Markets Recap
Equity Markets Recap

At the end of last week the S&P Index capped its first weekly decline of the year, after reaching the highest level since October 2007; amid increasing concern the Federal Reserve will curtail its stimulus program. Equities rebounded on the last day of the week as German business confidence rose more than estimated. The S&P fell 0.3% for the holiday-shortened week to 1,515.60. On the other hand the Dow Jones advanced 18.81 points, or 0.1%, to 14,000.57. Wall Street fell as FOMC committee members said the central bank should be ready to vary the pace of their $85 billion in monthly bond purchases, according to minutes of the Fed’s latest meeting. Concern over the risks and benefits of further quantitative easing helped give the S&P its largest two-day decline since November. Eco data in the US showed that applications for unemployment benefits in the U.S. rose for the first time in three weeks, returning to levels seen prior to the holiday period and indicating little change in the pace of firings. Jobless claims increased by 20,000 to 362,000 in the week ended Feb. 16.

At the end of the trading week the UK lost its AAA credit rating by Moody’s Investors Service, which cited the continuing weakness in the nation’s growth outlook and the challenges that presents to the government’s fiscal consolidation program. The rating on the U.K. was lowered one level to Aa1 from Aaa and the outlook on the nation’s debt changed to stable, Moody’s said in a statement today. With the U.K.’s high and rising debt burden, deterioration in the government’s balance sheet is unlikely to be reversed before 2016. The pound slumped after the downgrade in the last half hour of trading dropping 0.6 percent to $1.5163. Sterling has depreciated 5.6 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg. Explaining the main reason for the downgrade, Moody’s said “the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector deleveraging process.”

London’s FTSE 100 index of leading companies added 0.70 percent to close at 6,335.7 points, while Frankfurt’s DAX 30 rose 1.03 percent to 7,661.91 points and in Paris the CAC 40 jumped 2.25 percent to 3,706.28 points. European stock markets rebounded while the euro slid against the dollar on Friday as traders welcomed improving economic fortunes in Germany and looked ahead to weekend elections in indebted eurozone nation Italy. The euro tumbled to trade at 1.3188

A contraction in the German economy at the end of last year was a hiccup, analysts said on Friday, as data showed business confidence in Europe’s economic powerhouse soaring this year. The federal statistics office confirmed an earlier estimate that German gross domestic product (GDP) contracted by 0.6 percent in the final quarter of 2012, weighed down by a 2.0-percent slump in exports. Nevertheless, a whole range of experts — from analysts to economic think tanks, the government and even the Bundesbank — are convinced that the dip in growth will prove only temporary and GDP will start growing again as early as the first quarter of 2013. Economic sentiment in Germany could hardly be better. Earlier this week, the key ZEW barometer of investor confidence rose to levels last seen before the start of the three-year-old debt crisis. And on Friday, the even more closely watched Ifo business climate index notched up its strongest gain in two and a half years to hit its highest level since April 2012.

Central Banks Important in EUR-USD-GBP & JPY Trading

Central Banks Most Important Factor in EUR-USD-GBP & JPY Trading
Central Banks Most Important Factor in EUR-USD-GBP & JPY Trading

Yesterday’s sharp decline in European stocks may have been coming after a strong run since the start of the year, but it took a surprise twist in the Fed’s monetary policy to trigger the selling of equities. The US central bank said it may choose to halt or at least ease up on the pace of bond purchases as it believes there is a risk of asset bubbles developing and the potential for a rise in long-term interest rates when the flow of new money is turned off. This sent the markets into a tailspin and prompted analysts to ask if the recent rally has been sustained purely on central bank asset purchasing, rather than on any foreseeable improvement in economic performance. Traders reacted drastically to the FOMC minutes, which are just the Feds thoughts at the moment. And that moment was two weeks prior and does not mean any commitment or assurance of future outcomes. The Fed minutes sent the US dollar soaring and the euro tumbling. The US dollar index climbed above 81.00 while the euro dipped below 1.32 to close yesterday at 1.3189

As economic data shifts and economic situations change so does the Fed thinking. The minutes are just a reflection of the thoughts at the time. So why did the market react so drastically. Recently markets have been very sensitive to central banks and stimulus. All fundamental data seems to be evaluated in terms of supporting or not supporting stimulus programs.

Across the pond, the pound continues to tumble on lackluster eco news but not because the economy is shrinking, it is because the likelihood that the Bank of England will introduce additional stimulus. This has weighed down the pound trading at 1.5292.

The central bank of Japan continues to add stimulus while the Prime Minister of Japan pushes an aggressive monetary stimulus policy to help the economy climb from deflation. Last week data showed the trade balance widened to historical spreads. The JPY remains trapped in a range close to the 93.50 range. This week, Prime Minister Abe, is expected to nominate the next director of the Bank of Japan, to replace the now conservative leader who will be stepping down in the next few weeks. Abe is expected to name a replacement that supports the government’s aggressive stimulus plans.

Now we turn to the ECB, where last week Director Draghi, actually talked down the euro. Draghi has a way of moving markets in the Ben Bernanke style. Over the past months he has been able to support the euro ever since he declared in June that he would single-handily if necessary save the shared currency. European Central Bank President Mario Draghi sought to take the heat out of a debate about currency wars on Monday but said the ECB would still have to assess the economic impact of the euro’s strength.

The euro hit a 15-month high against the dollar earlier this month, complicating the ECB’s policy-making tasks by weighing on growth and feeding expectations that it may have to take fresh policy action, which some ECB members oppose. While he expected a very gradual recovery in the eurozone later this year, Draghi said the euro’s exchange rate was important for growth and inflation and that it could threaten to pull down inflation too far.

Japan’s expansive policies, which have driven down the yen, escaped direct criticism in a statement thrashed out in Moscow by G20 policymakers. While Japan and the United States are pursuing loose monetary policies, the ECB is starting to unwind some of its crisis measures – a contrast has helped drive up the euro.

Crude Oil Declines on Fundamentals

Crude Oil Declines on Fundamentals
Crude Oil Declines on Fundamentals
Crude oil firmed up in Asia today on some fresh buying as the fall below $93 a barrel attracted investors to buy the commodity. WTI crude oil is trading at 93.25 adding 41 cents since Thursday’s close. Oil fell yesterday marking the lowest close for a front-month contract this year, as a rising US dollar and lackluster economic data fed demand concerns. NYMEX crude oil extended losses from falling over2% as sentiment weakened following release of the Federal Open Market Committee meeting minutes, which raised fear that the central bank might end its bond-buying programmed earlier than expected

 Yesterday, it dropped $2.38,to settle at $92.84 a barrel, oil’s weakest closing price so far in 2013. Oil was also pulled lower by weak data from US. Weakening new orders hit manufacturing activity in February, according to two gauges released Thursday. Eurozone data showed a drop in PMI’s with France’s decline and an ongoing weakness in the eurozone gave traders the jitters sending the euro to new recent lows. The euro closed at 1.3189

The Federal Reserve Bank of Philadelphia’s gauge of regional manufacturing activity fell to negative 12.5 in February from negative 5.8 in January. And Markit, a financial information services company, said its manufacturing activity gauge showed slower expansion.

Crude oil futures fell yesterday as a government report showed that U.S. crude stockpiles climbed to the highest level since July.  Futures dropped 2.5 percent after the Energy Information Administration said that supplies rose 4.14 million barrels last week to 376.4 million. A 2-million-barrel gain was projected, according to a Bloomberg survey.  Production jumped to the most in more than 20 years. Markets also declined after the Federal Reserve signaled that it may consider slowing the pace of asset purchases, according to minutes of the Jan. 29-30 meeting, released on Thursday.

The U.S. and its allies say Iran may seek to make an atomic bomb, while the Islamic republic says developments are for civilian purposes. Sanctions aimed at stopping the program have hindered its ability to export oil. Iran pumped 2.6 million barrels a day in January, the lowest level since 1990, according to a Bloomberg survey of oil companies, producers and analysts.

Eco data today could have serious consequences for crude oil and the euro, with German GDP and ZEW business climate and IFO data due.

Other fundamental data affecting the crude oil market included data that showed that Europe’s hard-pressed refining industry faces more closures as its competition in the United States enjoys the double bonus of growing domestic shale oil supply and cheaper electricity bills from shale gas.

U.S. oil and gas producer Linn Energy LLC will buy Berry Petroleum Co for $2.5 billion in stock, raising its output by about a third and boosting its oil reserves in Texas, California, Colorado and Utah.

Liquefied natural gas ended lower yesterday as lower inventories supported prices. Natural gas prices are likely to go slightly up as last few weeks of the winter season can continue some heating demand. Gas futures on the New York Mercantile Exchange ended down 3.3 cents at $3.246 per million British thermal units after climbing to an intraday high of $3.337 and remain flat in this morning’s session.

Crude Oil Tumbles On Fundamentals

Crude Oil Tumbles On Fundamentals
Crude Oil Tumbles On Fundamentals
This morning crude oil futures were trading lower more than 1% tracking the down in benchmark contracts on the New York Mercantile Exchange. On Thursday morning crude is trading down by 81 cents at 94.42.  U.S. crude futures fell on Wednesday on a sharp bout of midmorning selling that also pulled down gasoline prices. Light, sweet crude for March delivery recently traded $2.25 lower at $94.41 a barrel on the New York Mercantile Exchange.

US crude oil prices were down on rumors that a large hedge fund was forced to liquidate substantial commodity positions which put pressure on prices. Prices were also pressured by Fed minutes which signaled a shorter duration of their asset buying program and hurt prices.  Crude oil posted its biggest daily fall so far in 2013 yesterday, joining a sell-off in precious metals and copper as market rumors circulated.

Saudi Arabia is expected to increase its oil production in the coming quarter despite lower demand which is likely to create excess supply. Saudi Arabia expects to raise its oil output in the second quarter to satisfy higher demand from China and feed economic recovery elsewhere, oil industry sources said.

Japan’s top buyer of Iranian crude JX Nippon Oil & Energy Corp has cut by 12percent the volume it plans to import under an annual deal, an industry source said, helping ensure the world’s third largest oil consumer remains exempt from U.S. sanctions on Iran. This week President Obama will be visiting Japan and Prime Minister Abe is expected to inform him that he will allow the startup of some of the Japanese nuclear plants, which will cut their dependence on imported oil and natural gas

U.S. retail gasoline demand fell in the two weeks ending Feb. 15 as the national average price spiked by 23 cents per gallon, MasterCard Inc. said on Wednesday. U.S. commercial crude oil stockpiles likely increased last week as refineries operated at a lower rate, an initial Reuters poll of 11 analysts showed on Wednesday, while refined product inventories were expected to have declined. The American Petroleum data released yesterday showed an increase in stocks this week. The EIA release has been delayed a day due to the Monday holiday in the US.

As the US dollar index climbs after the release of the FOMC minutes yesterday crude oil was pressurized as dollar denominated commodities become more costly.  Traders are also closely watching US lawmakers dealing with the “sequestered” budget cuts, which can have serious effects on the US economy and demand for oil.

U.S. natural gas futures ended higher on Wednesday, backed by cold weather forecasts for much of the nation for the next two weeks. Natural gas prices are likely to go up as lower inventories expected today can support prices. Front-month gas futures on the New York Mercantile Exchange ended up 0.7 cent at $3.279 per million British thermal units after trading between $3.257 and $3.313. Natural gas eased a bit this morning to trade at 3.257 dipping 9 points on the higher US dollar.

Precious Metals Weak in Risk On Trading Session

Precious Metals Weak in Risk On Trading Session
Precious Metals Weak in Risk On Trading Session
Gold futures were trading in a narrow range hugging the 1610 price level with a negative bias on exchanges today tracking the fall in international markets, where firm dollar against the euro weighed on prices.  Strong demand from China and bargain buying provided strong support to gold prices and limited any major fall. During the Asian session gold is trading at 1606.70 moving between small gains and losses. On Tuesday precious metals witnessed yet another decline, with COMEX silver prices losing the most on the day. Strong tone in global equity markets have led to investor’s preference for riskier assets.

Equities across the globe rallied, as a pick‐up in German economic sentiment index boosted hopes of economic recovery in Europe. In this respect, the ZEW survey beat expectations to hit its highest level since April 2010. Meanwhile data this morning showed that Japanese exports grew 6.4% in January, a faster pace than expected, with shipments to China swing back to growth after a recent fall‐off. Although the trade deficit hit an all-time record. The Japanese imports surged due to the cost of fuel imports, which has been necessary since the tsunami last year closed the nuclear power stations.

This week, focus will be on the US Federal Reserve policy minutes and the Italian elections. Moreover, upcoming spending cuts deadline in US (March 1) would also be crucial event to keep an eye on. US lawmakers seem to be unable or unwilling to deal with the “sequestered” budget cuts due to come into effect. This unwillingness has been reflecting consumer confidence lately as consumers uncertainty keeps them out of stores and pushes down retail sales. It is also affecting the housing market. As the deadline draws near, market uncertainty can turn to safe haven and risk off trading to the benefit of gold.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1319.96 tons by Feb19, up by 3.01 tons from the previous business day. While holdings in the world’s largest silver backed exchange-traded fund iShares Silver Trust stood at 10521.51 tons by Feb19, remains unchanged from the previous business day.

Industrial metals prices hit a three-week low yesterday, depressed by unease over top consumer China’s limp return to the market from a week-long holiday, although losses were limited by better-than expected German investor sentiment data. Silver was the big loser yesterday falling to trade below the 29.50 price. This morning silver has gained 76 pips and is trading at 29.498. Base metal prices are expected to trade with bearish note as expectation of measures by the Chinese government to curb the rise in the property prices might reduce the demand for the metals. This is expected to exert downside pressure on the base metals.

Crude Oil Fundamentals and News

Crude Oil Fundamentals and News
Crude Oil Fundamentals and News

Crude oil prices remain in negative territory again this morning trading at 96.08 off by 33 cents continuing yesterday’s decline. European Central Bank President Mario Draghi told the European Parliament yesterday that the economic outlook for euro nations remained weak at the start of 2013 but the bank expects “a gradual recovery later this year.” The ECB forecasts the region’s economy will shrink 0.3 percent in 2013.  The price of crude oil continues its decline this morning after the head of the European Central Bank described the economic outlook of the 17 countries that use the euro as weak in the near term.

Crude oil futures plunged below $96 a barrel in Asia electronic session today taking cues from the lower China and Japan markets and strength in the US dollar. Oil traders also looked ahead to the release of the minutes of the Federal Reserve’s January meeting on Wednesday for hints regarding the central bank’s attitude towards monetary policy. Any policy pause signal from the Fed minutes may send the U.S. dollar higher, pressuring dollar-denominated commodities.

Market sentiment remained on the back foot after data last week showed that the euro zone’s economy contracted by 0.6% in the three months to December, compared to expectations for a 0.4% decline. It was the fastest rate of decline since 2009 and marked a third consecutive quarter of contraction.

Also last week, official data showed that Japan’s economy contracted by 0.1% in the fourth quarter, compared to expectations for an uptick of 0.1%.

Meanwhile, in the U.S., data on Friday showed that industrial production contracted by 0.1% in January, missing expectations for a 0.2% rise and well below a 0.4% increase the previous month. U.S. housing data due this week could provide more cues on the country’s economic health.

Traders will closely monitor today’s release of eurozone and German ZEW reports to see if they can see any signs of recovery in the eurozone. Concerns about recession in eurozone also hurt the demand prospects and pushed prices down. Speculators can expect crude oil prices to go down as weaker manufacturing data from US and Saudi’s cut in exports due to lower demand will continue to put pressure on prices.

During the week traders will watch a fresh round of nuclear-arms talks between Iran and the West offered some event risk for the market, as Tehran remains under sanctions that have significantly cut Iranian petroleum exports. Upcoming U.S. economic data included January housing starts on Wednesday and the Philadelphia Fed index and leading indicators, both slated for Thursday while keeping an eye on US lawmakers who wrestle with the “sequestered” budget cut deadline drawing close.

Natural gas futures ended up on Monday due to the ongoing colder weather and are holding steady this morning. Natural gas prices are likely to go down as the winter season is about to end which could lower the heating demand in future. Front-month March natural gas futures on the New York Mercantile Exchange was up 2 cents to settle at $3.17 per million British thermal units.

India Considers Limiting Gold Imports

India Considers Limiting Gold Imports
India Considers Limiting Gold Imports
This morning on the COMEX, gold was trading slightly higher on bargain hunting after the recent correction in prices. But, a strong dollar against the euro capped the upside in prices. Gold fell yesterday almost $15 and made a low of $1630, just after the US saw some positive eco data. Due to greener sentiments over US economy and uncertainty ahead of the Bank of Japan’s policy meeting. This morning the BoJ assessment of the Japanese economy was much more positive than it had been in the past. Even though there is dissention between the Bank and the current Prime Minister, the Bank Director indicated that the Japanese economy would remain flat for a short while and then take off.

While European economies remain in deceleration phase, they have shown some signs of picking up and the G20 meeting over the weekend, traders prefer to sell off their bets. Also, investors are awaiting the monthly retail sales data from the US to get fresh cues on the economy. However bulls are still anticipating that a restocking by China after the Lunar New Year holidays could lift the bullion prices and a weak dollar supported the sentiments too. European shares also recovered earlier losses, while the euro firmed against the dollar after better-than-expected euro zone industrial output data, however, activities continued to remain muted in the absence of the top consumer China. Gold is hovering near its one month low.

G-20 finance ministers and central bank governors are also set to meet in Moscow on Friday, with negotiations around competitive currency policies likely to dominate. The G7 nations tried this week to cool growing tension over exchange rates, sparked by weakness in the Japanese yen, but markets found the effort lacking in clarity, thus take a policy to of wait and watch.

Prices were also hurt after World Gold Council report said that global gold demand fell in 2012 for the first time after 2009. SPDR Gold Trust holdings fell 0.23 percent to 1322.98 tons on Thursday from 1325.99 tons on Wednesday. Gold prices are expected to go down as a stronger dollar.  Gold extended losses to its weakest in more than a month on Friday, heading for its biggest weekly drop since December as a weakening euro and equities prompted investors to sell bullion to cover losses. 

The euro nursed heavy losses on Friday, while shares in Asia eased with investors turning cautious as the weak euro zone growth data presaged the G20 meeting in this session and on Saturday in Moscow.  A firmer Japanese currency dragged on yen-based gold, platinum and palladium futures on the Tokyo Commodity Exchange. 

In a surprise out of India one of gold’s largest importers,  an  RBI committee suggested limits on imports of gold by banks and other government agencies, which account for about 56 per cent of the total import of the precious metal. “Setting value or quantum limits for canalizing agencies and banks to import gold can also reduce the demand for gold. Such limits can be reviewed periodically,” said a report of RBI’s working group on gold loans. The report also suggested that government could consider removing such restrictions once the Current Account Deficit (CAD) comes down to sustainable level.

Crude Oil Faces Global Production and Inventory Increases

Crude Oil Faces Global Production and Inventory Increases
Crude Oil Faces Global Production and Inventory Increases
This morning light sweet crude oil prices are trading almost flat above $97. There is very little in the way of supporting eco data or news that would have an effect on petroleum’s.  Traders can expect oil prices to come under pressure on concern of lower demand due to uncertainty of major oil consumer like the US and Japan. The dollar remains firm this morning in the Asian session, keeping the dollar denominated commodity on an even keel.

Fourth quarter GDP of Japan contracted to -0.40% though stimulus program of 101 trillion have provided little lift, after the newly elected Prime Minister assured markets earlier this week that Japan would emerge from its recession. Today the BoJ held rates and policy having no effect on markets.  Therefore, concern of slowdown in Japan’s economy may continue to pressurize on oil price although that is tempered by huge stimulus and infrastructure projects which will require additional energy consumption.

The Department of Energy has reported that production reached a high level of 20 years, whereas slight improvement in distillates demand was witnessed in last week.  Oil prices dropped as much as 0.9% after a U.S. government report showed crude output jumped to the highest in 20 years. Yesterday’s EIA inventory showed a decrease in US supplies but was within line of expectations having little effect on the price. U.S. crude production rose to the highest since December 1992 and stockpiles increased, according to the Energy Information Administration crude inventories data yesterday. 

U.S. crude production climbed to 7.06 million barrels a day last week, the EIA, the Energy Department’s statistical arm, said in a report. Stockpiles rose 560,000 barrels, the report showed. They were forecast to increase BY 2.2 million, according to the median estimate in a Bloomberg News survey.

Iran, which is under a Western embargo on its oil exports, agreed on “some points” in talks with the International Atomic Energy Agency in Tehran, Reuters reported, citing the nation’s state-run Press TV.

During the European session, expected contraction in eurozone GDP for the fourth quarter may further have negative impact on prices on speculation of lower fuel demand in the countries. Also from the US weekly jobless claims are expected to increase which will act as a bearish driver for oil prices. Most importantly, oil market is eyeing on Iran talk with the World’s major powers in current month. Speculation on ease of nuclear tension may continue to cap on prices. Market attention remains focused on the nuclear test conducted by North Korea and United Nations sanctions. 

North Korean Nuclear Tension Pushes Up Crude Oil

North Korean Nuclear Tension Pushes Up Crude Oil
North Korean Nuclear Tension Pushes Up Crude Oil
This morning crude oil continues to gain, trading at 97.61 adding 10 cents in the Asian session, as prices rose yesterday after the U.S. Energy Information Administration (EIA) said world oil demand would increase faster than previously expected in 2013 and OPEC raised its outlook for the amount of crude it will need to pump this year. The EIA increased its forecast for demand after the 12-member OPEC countries said in its own monthly market report that world oil consumption would expand quicker than previously thought. The EIA upped its forecast for oil demand by 110,000 barrels per day to 1.05 million bpd in 2013, taking global demand to 90.2 million bpd this year. These reports also helped improve global sentiment reassuring markets that a global recovery was underway. Traders moved to more risk over the past days, easing the US dollar which helped crude prices increase.

Worries that Iran’s nuclear program will prompt more restrictions on that country’s oil paid investors’ attention more than North Korea’s nuclear test. Tensions eased somewhat on Tuesday when Iran acknowledged it was converting some of its higher-grade enriched uranium into reactor fuel, a move that could help prevent a dispute with the West over its nuclear program hitting a crisis in mid-2013. This morning international news is focused on North Korea and international sanctions and condemnations, while China deals with the North Korean leadership. China had warned the North Korean leaders against testing its miniaturized nuclear device. The problem has always been what China will bear in terms of restricting its protégé and neighbor, as well as whether it will cut back fuel shipments and other trade with North Korea. Moving forward, China really holds the key to what extent the actions will be different this time, as China joins with the international community echoing their dismay.

Crude prices were also supported by API report which showed inventories fell by 2.3 million barrels against expectations for a significant rise in inventories. Traders will be paying close attention to a weekly government survey from the Energy Information Administration, which is due to be released today. Stocks level has declined by more than 1000K barrels in Cushing Oklahoma delivery center for the first time in last two months. However, oil prices have not gained much amid US Energy department may show a higher stock piling report. DOE inventory report due tonight is expected to show higher stock piling for both crude and gasoline with no change in refiner’s capacity. From economic data front, increase in the US budget is supporting dollar and limiting gains on oil prices. Eurozone industrial production is expected to decline which may further pressurize prices during the European market hour. However, an expected rise in the US retail sales may support oil to take a pullback ahead of the government inventory report.

Natural gas has eased to trade at 3.232 as the weather turned warmer yesterday as storm passed. Traders can expect gas to continue its downside move on expectation of lower demand due to warm weather forecast and nuclear output having increased yesterday. However, according to the US Energy department natural gas storage is likely to fall by 150 BCF, which may support gas to limit the fall, but a stronger US dollar may weigh on the price.

Crude Oil Fundamentals

Crude Oil Fundamentals
Crude Oil Fundamentals
U.S. crude oil for March delivery settled up $1.31 at $97.03 a barrel, down by 1.37% on Monday but declined on Tuesday morning as traders booked profits. Crude oil is currently trading at 96.88 down by 15cents. WTI crude oil prices were quickly reducing the spread between Brent and WTI crude and as a stronger euro weakened Brent prices. There are no major cues from eurozone, whereas declining CPI of UK may create negative sentiment of the economy. This may keep oil prices under pressure during European session.

A recent EIA report shows that a temporary decrease in capacity  on Enbridge’s and Enterprises’ Seaway pipeline to about 175,000 bpd, from 400,000 bpd, has locked in more oil at Cushing, and brought on another bout of weakness in the WTI price, leading to a spike in the WTI to Brent differential. Oil in storage at Cushing has reached over 50 million barrels, nearly double the 28 million barrels held there this time last year. Various other U.S. refinery turnarounds in the spring 2013 season may result in painful differentials persisting through the first half, and perhaps well into the second half of the year. However, when BP’s Whiting upgrades are finally ready for start-up, and as Marathon’s upgraded Detroit refinery continues production, these two projects together should materially increase PADD II demand for Canadian heavy crude later in 2013 and in 2014, and begin to ease the WCS to WTI differential.

Light sweet crude oil was also supported on improved demand prospects as signs of recovery from the US and China supported prices. Chinese markets are closed this week for the Lunar holiday, while Japanese markets were closed also on Monday for a regional holiday.

Traders can expect crude oil prices to go up. However the upside will be limited as higher API inventories expected tomorrow will cap the prices. According to the US Energy department, crude oil stocks are likely to increase more than 2000K barrels in the last week inventory report. Also cues from Japan may support oil prices to gain on anticipation of further monetary stimulus in BOJ meet starting from today.

Last week Chinese data which was very strong for crude oil but somehow did not support an increase in prices, as China is closed for the next 10days for the lunar holiday, reducing the demand at present. Geopolitical stress in the Middle East seemed to level out with the possibilities of Vice President Biden taking the lead in negotiations with Iran. OPEC supply and production met quotas and the stronger US dollar weighed on prices.

U.S. natural gas ended higher on Monday as heating demand picked up due to cold weather. As the US remains blanketed by snow residential and business demand continues to increase. Natural gas prices are likely to go up supported by utilities switching from coal to cheaper gas for power generation at current price levels which are considerably low. Front-month gas futures on the New York Mercantile Exchange ended up 0.7 cent at $3.279. Traders can expect gas to continue its upside move on expectation of increasing demand as nuclear output have declined on yesterday.

Precious Metals Weaken On The Global Recovery

Precious Metals Weaken On The Global Recovery
Precious Metals Weaken On The Global Recovery

Gold came under pressures amid thin trading volumes as Chinese market was closed due to the week-long Lunar New Year holidays. U.S. gold futures for April delivery settled down $17.80 at $1,649.10 an ounce, with trading volume about 5 percent above its 250-day average. This morning gold continues to decline trading at 1645.35 off by $3.75 prices were down as physical demand from Asian markets dried up due to Lunar New Year holidays and hurt prices.

Gold was also hurt as investors remained cautious ahead of the G20 meeting which could give direction to the global currencies movement.

SPDR Gold Trust showed a 1.2-ton outflow in holdings so far in February, compared to inflows of 6.05 tons in the same 2012-period. Gold prices are expected to go down due to technical selling and low liquidity.  The SPDR Gold Trust, gold’s largest exchange-traded fund (ETF), also saw its first inflows since mid-January, though holdings so far this year are still lower compared to a year ago. Gold has now falling well behind the value of platinum, where the price has been rising steadily as traders bet on demand improving in the event of the global economy picking up as it is heavily used by car makers in catalysts that control exhaust emissions.

News that the Federal Reserve may keep interest rates near zero after its bond-buying ends, even after hitting its targets for unemployment or inflation, in order to maintain stimulus also continues to weigh on gold prices.

If the ECB or the EU policymakers in the EU Summit come up with big headlines regarding the progress of the EU economy this could influence euro traders and indirectly affect precious metals with a positive bias. At the same time the upcoming reports regarding the U.S economy including: consumer confidence, retail sales and jobless claims, could affect the USD and bullion prices also. If these reports will show contraction in the U.S economy, they may positively affect gold and silver or vice versa. The U.S money base has increased in recent weeks, which could lead to a rise in the price of gold via its growing demand as a safe haven investment.

On the economic data front, the US NFIB small business optimism may improve slightly. Because the government is focusing on large businesses and imposing higher tax on them, small business outlook should come out better. Dollar is therefore likely to remain strong which should be another factor for gold to remain under pressure.

Silver remains weak weighed down by the drop in demand for precious metals as the rise in demand for industrial metals is not enough to support prices. Silver is trading at 30.81 this morning. Silver is expected to follow cues from gold as mentioned above. 

Gold Prices Range Bound With China and Japan Closed

Gold Expected Hold Prices With China and Japan Closed
Gold Expected Hold Prices With China and Japan Closed

COMEX gold traded flat on Friday at $1667.7 an ounce, down by 80 cents or 0.05 percent for the week. On Monday morning gold is continuing the same trend trading at 1668.35 with Chinese and Japanese markets closed for holidays. Volume and activity are very light this morning. The Japanese markets are closed today for National Foundation Day and Chinese markets are closed for a week for the Lunar Holiday and Spring Festival.

Gold fell after ECB president raised concerns that recession in the euro zone would continue in the first half of 2013 which hurt gold’s inflation hedge appeal. Positive trade balance data from US and China also showed signs of recovery in the world’s two largest economies and hurt gold are safe haven appeal.

A sharp down trend in the European currency was cushioned as the result of German Factory Orders and industrial production coming on a favorable note. German Trade Balance was at a surplus of 16.8 billion Euros in December as against a previous surplus of $14.6billion a month ago. The French Gov. Budget Balance was at a deficit of $87.2 billion in December from earlier deficit of 103.4 billion in November. Italian Industrial Production increased by 0.4 percent in December as compared to decline of 1.1 percent in prior month. The euro touched a weekly low of 1.3352 and closed at 1.3363 against dollar

The US Trade Balance was at a deficit of $38.5 billion in December as against a previous deficit of $48.6 billion a month ago. Wholesale Inventories declined by 0.1 percent in December from rise of 0.4 percent in November. China’s Consumer Price Index (CPI) grew at slow pace of 2 percent in January from rise of 2.5 percent in December. Producer Price Index (PPI) declined by 1.6 percent in January as compared to fall of 1.9 percent a month ago.

Gold prices are expected to move in a range as China markets would remain shut for the Lunar New Year and political tensions in the eurozone could lead to bargain hunting. The US Federal Reserve has so far not hinted at any rollback of the quantitative easing program, market players fear some tightening of policies in the coming months, as the world’s largest economy is showing signs of recovery. Meanwhile, China’s trade surplus rose 7.7% on year to $29.2 bln in January with exports up 25% on year at $187.4 bln. Market continues to favor the downside in gold as it would seem to take a really definitive risk off environment to rekindle broad-based fresh buying interest in gold. A weaker euro and the absence of Chinese players from the market will also keep prices under pressure. Concerns had emerged with the common European currency falling Thursday after European Central Bank President Mario Draghi said the impact of a strong euro on inflation will be watched.

With the G20 meeting this week, markets will watch closely for statements and news flow from the meeting. Gold is expect to remain within its range of 1650-1685 while US lawmakers tackle budget and spending cuts, while sequestered budget cuts are drawing closer. Rhetoric from US politicians may cause gold to become volatile. The US dollar continues to strengthen keeping gold locked in its current range. 

Monday Mornings Global Market Review

Monday Mornings Global Market Review
Monday Mornings Global Market Review

Wall Street is no stranger to strong performances in January, only to see the lofty gains early in the year transition into months of grinding action that goes nowhere. That’s what happened in the two previous years, sometimes called the Spring stall the, the economy in 2011 and 2012 stopped cold after the new year dragging equities along with it, and 2013 could follow the same routine. Markets are up this year in the face of Washington’s debates over fiscal policy, but a looming deadline on spending reductions could test the gains.  At present global sentiment remains positive as eco data shows that the recovery in China and the US remains on track. This past week European leaders have finally agreed a budget deal for the rest of the decade after a marathon 25 hour negotiation session in Brussels, which will lead to the first cut in EU spending in its history. And we expect this to auger well for the region in the weeks to come. The Asian markets will remain prone to the global cues and the ongoing Bank of Japan restructuring.

Last week traders witnessed a somewhat bumpy week, both the NASDAQ and S&P 500 booked their sixth straight week of gains. The Dow closed down slightly after topping the 14,000 hurdle a week ago. The Dow Jones and the S&P 500 both rose between 0.3% and 0.5% Friday. The NASDAQ jumped and had a good run so far this year. The Dow and S&P 500 are both up nearly 7% and near their all-time highs, while the NASDAQ has gained nearly 6%.

Friday saw the New York exchanges wipe out most of the session’s losses to finish flat in choppy trading, but gains were limited by weakness in techs and as investors were reluctant to jump in following recent rallies that propelled major averages to five-year highs. The NASDAQ composite gained 0.5% for the week, while the DJIA lost 0.1% for the week. The euro declined the most since July versus the dollar after European Central Bank President Mario Draghi said a strong currency could slow the region’s economic recovery, lifting bets the bank may lower interest rates. Ireland’s five-year note yields fell to the lowest in more than seven years after the nation won an agreement to restructure the costs of rescuing the former Anglo Irish Bank Corp. The CAC 40 lost 3.2% for the week, Followed by DAX (-2.3) and FTSE (-1.3%) for the week. Asian stocks outside Japan fell this week after the European Central Bank said the euro’s strength could hamper an economic recovery. Japanese shares gained as the yen fell after Bank of Japan Governor Masaaki Shirakawa said he will step down ahead of schedule. Amongst the Asian markets, The Shanghai composite remains the only one to be gained 0.2%, however, all the other indices Hang Sang lost 2.1%, followed by Nikkei (-0.3%), Straits Times (-0.6%) for the week. China is closed down for the lunar holiday.

This coming weeks main excitement maybe the upcoming G20 meeting, while sparks continue to fly in Japan and the beginnings of a currency war might be in the making as European exports suffer due to the weak yen. Gold remains directionless while crude oil remains a bit too high and maybe headed for a turn down. The US dollar gained for the week on weakness in the euro caused by the central bankers’ comments, along with political uncertainty in Spain and Italy. Positive trade balance data from US and China also showed signs of recovery in the world’s two largest economies and hurt gold’s safe haven appeal as the US dollar gathered momentum. 

Crude Oil Bows to the FX Markets

oil usd bnsWest Texas Intermediary crude oil futures were trading slightly higher tracking rise in benchmark contracts on the New York Mercantile Exchange, where weak US dollar against the euro supported recovery in oil futures as the US dollar gained crude prices dipped. This morning crude oil is trading at $96.78. U.S. crude-oil futures pared early losses Wednesday after weekly government data showed a smaller increase in crude-oil stockpiles than many analysts were anticipating. The U.S. Energy Information Administration (EIA) released its weekly petroleum status report yesterday showing that U.S. commercial crude inventories increased by 2.6 million barrels last week, bringing the total U.S. commercial crude inventory to 371.7 million barrels, well above the upper limit of the five-year range for this time of the year. Earlier in the week, the American Petroleum Institute reported an inventory increase of 3.63 million barrels in crude supplies last week. Platts estimated a build of 3 million barrels in crude inventories for last week. Dow Jones estimates called for a crude inventory build of 2.9 million barrels, an increase of 900,000 barrels in gasoline supplies and a drop of 600,000 barrels in distillate supplies. Markets showed little reaction to the better than expected inventory.

Saudi Arabia, the world’s largest oil exporter, kept crude oil production steady at 9.05 million barrels per day (bpd) in January, from 9.025 million bpd in December. High inventories along with high output are likely to hurt crude prices.

Energy speculators can expect crude oil prices to go down as investors wait for the ECB press conference and China trade balance data tomorrow to confirm the outlook for demand.

The marquee event of the day week is the Mr. Draghi’s press conference after the ECB meeting today. With the euro trading high and tensions rising between Germany and France over the price of the euro, it is unlikely that Mr. Draghi will talk up the euro, which is weighing heavily on European exporters. Between the strength of the euro and the weakness of the Japanese yen, there are mounting tensions in the FX markets. Whichever way Mr. Draghi leans today, will most likely have an effect on the US dollar index which will weigh on all dollar denominated commodities including crude oil.

U.S. natural gas ended higher on Wednesday, reacting to fairly cold Northeast and Midwest forecasts for the next few days that should drive up the heating demand. Natural gas prices are likely to move up on colder weather forecasts and low inventories expected later. Natural gas is trading at $3.441 this morning.