London, 13 September 2010

Energy: The price of WTI has climbed to a monthly high of $77.3 a barrel as the trading week gets underway. Economic data from China at the weekend was better than expected and suggests ongoing robust demand for oil from the world’s second biggest oil consumer.

China had already reported another rise in oil imports on Friday. Additional support for WTI crude is coming from the closure for three days now of the major oil pipeline between Canada and the USA, which normally transports 670 thousand barrels of crude a day. This could lead to a reduction of high US inventories, especially at Cushing, the main trading point for WTI. Against this backdrop, Brent’s premium on WTI has narrowed to $1.5 and the price gap between the next two expiring WTI contracts is now only $0.7. In the short term, WTI prices should climb further and the spread should continue to narrow.

A change in sentiment can also be observed among money managers, who increased their net long positions by 6 thousand contracts in the week ending September 7th, for the first time after four straight weeks of position reductions.

The International Energy Administration (IEA) has slightly upped its forecast for global oil demand in 2010 and now expects a rise of 1.9 million barrels a day. In 2011, the IEA anticipates a rise of 1.3 million barrels a day. At the same time, it still points to significant downside risks for the forecast. The forward demand cover of stockpiles in OECD countries rose in July to 61.4 days, which is close to the record level reached 12 years ago. This indicates a continued oversupply.

Precious metals: Gold has failed to hit new record highs for now but is still trading only 1.5% shy of the record, at $1,245 a troy ounce. Given this closeness, another attempt at the record is on the cards this week. The US economic data due for publication this week are unlikely to dispel double-dip fears for the US economy. In addition, more restrictive measures could be imminent in China after the latest data there. The demand for gold as a safe haven should thus remain.

Net long positions in gold rose in the week to September 7th to 211,027 contracts, which is the seventh weekly rise in a row and brings net longs to their highest level since the end of June. Speculative net long positions in silver climbed by 5 thousand to a record 44,536 contracts, meaning they have surged by more than 60% in just two weeks. High speculative interest should also advise caution, though. If the record level of $1,265 for gold and the psychologically important mark of $20 for silver are not overcome soon, speculative investors could start to take profits, which would trigger a fall in prices.

Base metals: The data on retail sales, industrial production and lending have all brought positive surprises in China. Although this increases the likelihood of a rate hike soon – we expect the key interest rate to be raised by 27 basis points in Q4 – especially as consumer prices have posted their sharpest yearly rise since October 2008, lower risk aversion and greater economic optimism are supporting base metal prices at present. Furthermore, the National Bureau of Statistics of China has reported a decline in copper and aluminium output in August. Copper production fell by 0.3% and aluminium production by 5.4% compared to July. Aluminium stockpiles on the SHFE dropped further last week and are now at their lowest level since May 2010. Although we expect the energy-savings measures of China’s provincial governments to tighten the aluminium market, it should not be forgotten that aluminium production in China in the first eight months of the year was 37.4% higher than it was a year ago. Stronger speculative interest has also played a role in the metal price rally. According to the CFTC, net long positions of money managers on the COMEX rose in the week ending September 7th by 4.5 thousand contracts, or 23%, to 24 thousand contracts, the highest level since April this year.

Agriculturals: The price of corn on the CBOT climbed to 23-month high of $4.64 a bushel on Friday, after the US Department of Agriculture (USDA) lowered this year’s US crop estimate by 5 million tons, or 2%, and sees the stocks-to-use ratio falling to its lowest level in 15 years. Speculative interest on the corn market is uninterrupted and could be strengthened even more by the latest USDA data: in the week up to September 7th, net long positions rose again by nearly 20 thousand contracts to 341.3 thousand contracts.
The USDA corrections to wheat forecasts were quite moderate in comparison. Although the crop figures for the EU and Russia were revised downwards again by about 2.5 million tons in both cases. The situation in Canada has improved recently, however, so the crop estimate here was raised by 2 million tons. On a global scale, this means a reduction of “only” 2.7 million tons, which was less than widely anticipated. Although this dampens price expectations, strong export activity should support prices. European wheat should continue to profit from the news that the EU granted export licences for 943 thousand tons of wheat last week, a volume not reached in the past three years. Furthermore, following a major order from Egypt, US exports were also higher last week than in the past three years according to the USDA.

Ends --

Commerzbank Corporates & Markets
Commodities
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Carsten Fritsch
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