Central Banks and Crude Oil

Jun 7 • Market Commentaries • 1574 Views • Comments Off on Central Banks and Crude Oil

Chinese equities gained the most in a week after the government signaled it will delay tightening bank capital rules and investors speculated monetary policy would be eased to prevent Europe’s debt crisis from harming the economy. Further China’s biggest auto-dealer association, asked Car producers to scale back their sales targets or sweeten incentives as the worsening glut of vehicles across the showrooms, dealerships is unsustainable and may support some gains in metals. Besides, the European Union and Germany were making an urgent plan to rescue Spain’s banking sector. The plan requires less austerity measures for Spain, which does not need to accept close supervision from its lenders either, with the rescue fund at least amounting to 80 billion Euros. In this context, investors may expect glimmer of hope to solve the European debt crisis and may boost market sentiment extending gains to commodities.

From the economic data front, the leading index from Japan may decline slightly due to deteriorating economic sentiments while from UK the PMI services are likely to remain suppressed and may weaken commodities. The Bank of England is also expected to declare its interest rate and may opt to keep it unchanged after recent easing and no change from its neighbor ECB. The BOE may also wait and see the economic developments prior to any easing, as economies from Asian to Americas resemble weakness.

Oil prices are trading above $85.46/bbl with gain of more than 0.50 percent in Electronic platform. Oil prices have taken positive cues from higher trading Asian equity market and optimism of further quantitative easing from Fed. Most of the Asian equities are up by 1-2 percent on stimulus of optimism from Euro-zone and US. Beige book released on yesterday have shown a moderate growth for US. Federal Reserve Vice Chairman have warranted for additional monetary stimulus due to lower job growth. Today, market will be waiting for another meet from Feb where Chairman Bernanke is going to give his speech on US growth. Thus, we may expect above factors may keep oil futures on higher side. During European session Spain Bond auction may create some pressure on Euro, which may limit the gain in oil prices.


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Likewise, during SU session, initial jobless claims and continuing claims are expected to increase in the last week, which may create further pressure on oil prices. However, optimism of further monetary easing in world’s largest oil consuming nations may support oil prices to trade on positive trend throughout the day.

Currently, gas futures prices are trading almost flat at $2.430/mmbtu in Globex electronic platform. As per US Energy department, natural gas storage level is likely increase by 58 BCF. Currently, the storage level is at 2815BCF, positioned storage volumes 732 Bcf above year-ago levels. In the coming week, also the injection level is likely to increase but in a slower pace by 58 BCF, which may add some points on higher side today. On the other side, as per National Hurricane Centre, weather condition is expected to remain normal, which may not pull demand from residential sector. The updated EIA inventory is due today; investors are hoping that the unseasonably warm weather in the US Midwest will show additional consumption which will drive the prices upwards.

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