Author: SondraHunter

Market sentiment appeared to have improved in Asia Monday, probably amid the Greek parliament’s approval of additional measures. European ministers and private creditors will decide this week on the rescue plan which needs to be approved before Greece’s debt repayment due on March 21. Investors worried about that Greece might not be able to reach a deal with the EU/ECB/IMF troika after riots in Athens and other cities resulted in injuries to over 120 people.

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Market Sentiment Lifted as Greek Parliament Approved Austerity Measures

According to the DOE/EIA weekly report, total crude oil and petroleum products stocks rose +4.17 mmb to 1059.64 mmb in the week ended February 3. Crude stockpile increased +0.30 mmb to 339.25 mmb as stocks gained in 4 out of 5 PADDs. Cushing stock added +0.37 mmb to 30.49 mmb. Utilization rate increased +1.0% to 82.8%.

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Crude Inventory Gained but Less than Expected

Market sentiment was negatively affected by the lack of progress in Greece’s PSI and deal with the troika regarding the new bailout package. Wall Street retreated with the DJIA and S&P 500 losing -0.13% and -0.04% respectively. 2 major crude oil benchmarks continued to move in opposite directions. WTI crude oil slipped amid talks of IEA’s downgrade of its 2012 demand forecast while Brent crude surged on exceptionally cold weather in Europe and global supply constraints after sanctions on Iran. Gold price eased a tad as the US dollar strengthened. Comments from several Fed presidents after the January employment report indicated Fed members are having wider split on monetary policies.

The EU/IMF/ECB required Greece to speed up its economic reform and deficit cuts so as to tap the new bailout fund worth of 170B euro. However, the progress has been slow so far. The latest update was that Greece agreed to agree to cut 15 000 government jobs in 2012 but this commitment was insufficient in the troika’s mind. Similarly, the PSI deal has still not been finalized after discussions for months.

Comments from St. Louis Fed President James Bullard that the Fed should increase interest rates next year revealed the split in views among FOMC members. Bullard, not a voting member this year, said that he disagreed with the Fed’s announcement to leave interest rates at exceptionally low levels at least until late-2014. He said that ‘it’s important to start to remove accommodation – even when you go up to 1 -1.5%, that’s still very easy monetary policy … It’s a matter of getting to a normal level of interest rates at the right time. I don’t think you want to wait until everything is exactly the way you’d expect it to be.” The January employment released last Friday was a pleasant surprise with the jobless rate unexpectedly declined. We would not be surprised to see more divergent opinions among Fed members regarding rate hikes and QE3 at the upcoming meeting.

Fed Chairman Ben Bernanke will testify in the Senate. While his comments will likely be similar to those made to the House, it would interesting to see if he would make any changes after Friday’s payrolls report. The RBA unexpectedly left the cash rate unchanged at 4.255. This was in contrast with consensus of a -25 bps cut. The central bank stated that interest rates for borrowers have declined to be close to their medium-term average after the 2 consecutive rate cut since November.

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Sentiment Dampened by Lackluster Progress in Greece

It was a tale of two cities in the performance of 2 oil benchmarks. The sharp increase in oil supplies in the US continued to weighed on WTI crude oil prices while tensions over Iran boosted Brent crude prices for another day. Gold strengthened further on the Fed’s easing prospect and weakness in the US dollar. The market sentiment fluctuated during the day, being lifted by Chinese Premier Wen’s comments on European debts but then damped by the cold water poured by Jean-Claude Juncker, Head of the Eurogroup, regarding the EU summit measures and Greek PSI.

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Market Sentiment Mixed on Comments from Chinese and EU Leaders

Gold remained firm in European session with the benchmark Comex contract hovering around 1750. Given the turmoil in the Eurozone, Swiss franc has once again become a safe haven. Speculations have fueled that the SNB may resume intervention as the franc has risen against both the US dollar and the Euro in recent day. From the lesson in September last year, the fall in Swiss franc would trigger selloff in gold. While history may repeat should the SNB intervene in coming days, this should only be temporary. Given the reaction of the gold price to the January FOMC statement, the precious metal should glitter in the low-rate environment.

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Further Intervention from SNB should have Less Impact on Gold than Last Year

Worries over the sovereign debt crisis in the Eurozone eased temporarily after the successful Spanish auction. Reports also showed that Ireland has passed its latest IMF/EU assessment. In Greece, there have been speculations that a PSI resolution would be reached soon. Market sentiment was also lifted by better-than-expected US jobless claims. Wall Street climbed higher with DJIA and S&P 500 gaining +0.37% and +0.49% respectively. In the commodity sector, oil slipped as US fuel demand reportedly dropped last week. Moreover, it appeared that the EU has not yet reached agreement on the Iran embargo.

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Sentiment Temporarily Lifted by Well-Received European Auctions

Gold prices increased +28% to an annual average of $1572 in 2011 with investment demand being the key driver of gains. In the meantime, the robust jewelry sector, the surge in official sector buying and the retrained scrap supply also contributed to the price strength. Jewelry demand slid only -2% in 2011 despite the price spike. Demand was strong in India and China amid bullish gold price expectation and robust GDP growth in the 2 countries.

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Thomson Reuters GFMS Gold Survey 2011 Update 2 Launch: Key Takeaways

Iran’s OPEC Governor Mohammad-Ali Khatibi has today warned neighbouring Gulf oil states to refrain from supporting a possible EU oil embargo barring purchases of oil from Iran, calling such help a dangerous political game.

EU Oil Embargo

EU foreign ministers will meet on January 23 to consider an Europe wide oil embargo on Iran. The approved, the EU’s 27 members states would be prohibited from concluding new oil contracts with Iran or renewing any that are due to expire.

Iran’s OPEC Governor Mohammad-Ali Khatibi, in an interview with Shargh, questioned whether OPEC had as much as 4 million barrels a day in surplus capacity. He said Arab crude oil producers would be able to provide oil of a grade similar to Iran’s crude, though such an effort would prove costly for them, the newspaper cited Khatibi as saying.

“If oil producers bordering the Persian Gulf show the green light to replace Iran’s crude with theirs, whatever happens, they will be key players in a move to sanction Iran’s oil.” Shargh, the Tehran based newspaper cited Khatibi as saying in an interview.

Western sanctions are being ratcheted up, shaking Iran’s oil dependent economy.

Military pressure is building, with the US and the UK deploying warships to the Gulf, and reports suggesting Israel could be poised to launch air strikes against Iranian nuclear sites.

A covert campaign has also been stepped up, as evidenced last Wednesday by the murder of a deputy director of Iran’s main uranium enrichment plant, the fifth Iranian scientist to be targeted in Tehran by motorbike mounted assassins in the past two years.

Furious Iranian officials say they are looking at ways of to hit back against those they see responsible for the attacks.

They are also threatening to close the Strait of Hormuz in the Gulf if extra sanctions bite, cutting off the transport of 20 percent of the world’s oil. The US has said that would cross a red line, prompting likely military action.

Meanwhile, Britain’s foreign secretary said Sunday that European nations will intensify pressure on Iran over its nuclear program, but insisted the West wasn’t pressing for military action.

William Hague told Sky News television that he believed the EU would agree tough new sanctions against Tehran’s oil sector later this month, and would continue to look for peaceful methods of persuading Iran to ditch its pursuit of a nuclear weapon.

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Iran warns neighbour Gulf oil states not to support the EU oil embargo