GoDubai
  
  
  
  
Citylife > Press Release
  Home Contact us Add to Favourites
Most Recent Postings
More Press Releses
Featured Sections

Event Finder
A daily roundup of exhibitions, promotions and other events in Dubai and the rest of the Emirates.
Submit an Event
Latest Dubai Press Releases >>

 
  Share
  • Brisk demand for energy leads commodities to bullish start for 2018
  • Softer USD, attention to inflation and geopolitical risks key drivers for oil and gold
  • Correction in gold after $95 non-stop rally remains elusive
  • We stick to bullish outlook for gold in early 2018
  • Brent touches $70/b ahead of Trump's decision on Iran sanctions
Dubai, UAE, January 14, 2018:  The commodities sector — led by energy — continues to see demand during the first full trading week of 2018. The sector has been benefiting from an increased focus on inflation as the current expansion cycle moves toward its late stage where price pressures tend to build. 
 
As a result, the rally during the past month has pushed the broad-based Bloomberg Commodity index (BCOM) and the energy-heavier S&P GSCI to levels last seen in 2015. With crude oil and gold representing 46% of the exposure in the S&P GSCI and 27% in the BCOM, any demand from index investors will benefit these two commodities more than most other commodities.
 
A correction in gold after a $95 non-stop rally remains elusive, and, after a brief pause, the yellow metal continued its ascent while clocking up the longest run of weekly gains since last April. The metal is being driven higher by investors focusing on increased inflation risks and the weaker dollar, not least against the yen. These developments more than offset a continued surge in global stocks and heightened bond market volatility. The latter has come in response to a stark reassessment of the anticipated policy path of both the Bank of Japan and not least the European Central Bank.
 
Brent crude oil reached $70/barrel ahead of US president Donald Trump's long-awaited decision on whether to waive sanctions against Iran or step away from the deal and reintroduce sanctions. The latter could trigger a price-supportive slump in Iran's oil exports, thereby prolonging the sequence of multiple supply disruptions witnessed since last October. 
 
Natural gas surged more than 11% but remains stuck in a one-year range around $3/therm. A record weekly stock draw of 359 billion cubic feet is being offset by record production and a near-term outlook for warmer weather. 
 
Cotton surged to a seven-month high ahead a US government report that was expected to cut US ending stocks amid higher exports. Other agricultural commodities remained under pressure due to abundant supplies. While most energy and metal commodities currently trade above their 200-day moving averages, most farm commodities, with the exceptions of cotton and livestock, trade below as abundant supply continues to attract speculative short-selling from funds. 
 
Gold resumed its rally as the dollar hit a three-year low against the euro and a six-week low against the Japanese yen. The December 13 dovish rate hike from the Federal Open Market Committee followed by the US tax reform helped reverse gold by weakening the dollar while raising inflation expectations. 
 
Volatility returned to bond markets, with the yield on US 10-year treasuries reaching 2.6%, the highest since March. Concerns are being raised that the bull market in bonds, which has lasted for more than 25 years, could be coming to an end. Overall, however, real yields, an important driver for gold, remain range-bound, with rising US nominal yields offset by rising inflation expectations as shown by the breakeven yield below.
 
We maintain a bullish outlook for gold into these early stages of 2018, with the yellow metal targeting resistance at $1,350/oz followed by $1,375/oz, the 2016 high. But after a $95 rally from the December 12 low, a correction bigger than the $18 seen this week is probably what the market needs to gain the confidence required to push the price higher. 
 
Crude oil continued higher, but just like in 2015 the psychological $70/b on Brent crude combined with a record reading for the relative strength index (RSI) helped trigger some profit-taking. WTI crude oil almost made it to $65/b, the highest level since December 2014. 
 
Multiple realised and unrealised supply disruptions together with falling US and global inventories all helped propel crude oil higher in recent months. Missing from the equation, however, has been the elusive corrections once supply disruptions either faded or failed to materialise. This highlights the current sentiment and bullish traders' ability to protect a record long position of more than one billion barrels. 
 
A combination of elevated refinery demand and lower imports has seen US oil and product stocks approach the five-year average. The strong momentum of the past six months has resulted in the biggest accumulation of long positions on record. In the week to January 2, hedge funds held a speculative long in crude oil and products of close to 1.2 billion barrels, with WTI and Brent longs representing the bulk of this exposure. 
 
Developments related to Iran were behind the latest run-up in oil prices. Countrywide unrest at the beginning of the year was followed by attention to the January 12 deadline when President Trump is to decide whether to certify Iran's compliance with the nuclear deal and thereby continue to waive the sanctions that were lifted after the deal in July 2015. Stepping away from the agreement between Iran and five other nations could trigger a unilateral reintroduction of sanctions against persons or organisations, which could hamper Iran's ability to maintain — let alone expand — its production. 
 
Continued high compliance has left the risk to Opec's overall production level skewed to the downside, not least due to current and potential future developments among the five weakest producers. For instance, Venezuela remains on the brink of collapse. Lack of funding and new investments have led to a steep decline in the national oil company's ability to produce and ship crude oil. 
 
Contrary to what the market is now telling us, we maintain the view that the job to create a balanced market is not yet done. We see short-term and longer-term challenges to the prevailing bullish sentiment. In a macro perspective, we see the risk of growth disappointing as central banks begin tapering their accommodative policies. The growth seen during the past few years has been driven by credit, and as central banks start to raise the cost of money, global growth and demand for oil could begin to suffer.
 
Support from declining US stocks should also begin to fade as both crude oil and gasoline stocks tend to rise during the first quarter of the year as demand from refineries and drivers slows. Lower imports and rising exports of crude oil have, however, helped extend the period of price-supportive stock draws. 
 
Given a record one-billion-barrel long and the impact on the price of oil of a few hundred thousand barrels per day in changed supply or demand, we see the risk – especially during the coming months – skewed to lower prices, with Brent crude oil at risk of returning to $60/b.  
 
Renewed geopolitical risks, as mentioned, are likely to be the key source of support and one which could upset our call for lower prices during the first quarter of 2018
 
In conclusion, given our current views on the market, we see increased potential of a reversal higher in the gold/Brent crude oil ratio. After peaking at 27.6 last June, it has since declined and this week reached a 30-month low at 19.3. 
 



Posted by : GoDubai Editorial Team
Viewed 6533 times
Posted on : Sunday, January 14, 2018  
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of GoDubai.com.
Previous Story : Abu Dhabi Fund for Development Holds Panel Discussion on Success of UAE-Pacific Partnership Fund
Next Story : Dubai Islamic Economy Development Centre to Enhance Cooperation in Islamic Economy with Tatarstan-ba...
Email this article Print this article

Share this article with your friends and followers
NewsVine

Comments

Back to Top  
Most Viewed Press Release posted in the last 7 days
Let It Glow
Filorga Launches FLASH-NUDE Collection
Let All Your Photos Be Merry & Bright
The Rado DiaMaster Petite Seconde Automatic COSC The Rado watch at the top of th...
HP ProBook x360 11 G3 and G4 Education Edition
Chrono 4 Grande Taille - an extra-special timepiece
Tips and Tricks to Wash the Perfect Whites
30 Years of Ryder Cup Heroes Confirmed for the 30th Edition of the Omega Dubai ...
PopSockets launches a new collection with crystals from Swarovski, the must-have...
Nike Dubai, the largest Nike store in the MENA region, opens its doors in the Du...
Maintain Healthy Skin Year Round
American Eagle Is the Go-to Destination for Gifting This Holiday Season'
Free gold coins at Malabar Gold & Diamonds Festival
MIDO Baroncelli Lady Day & Night collection
Akshay Kumar Stuns Audiences With Transformation Into Surprising Look for 2.0
GAZOO Racing Wins Australia Rally at FIA World Rally Championship
Golden Mile Galleria's ‘A Cultural Flair' attracts hundreds of art lovers to Pal...
Newby Teas Launches Advent Calendar For Christmas 2018
Tissot Chemin des Tourelles
The Interiors Gift Guide with Home and Soul
Growth and inclusivity drive Avaya's channel strategy for 2019
Time For Enchanting Moments
Etihad Museum displays the UAE flag using 3D lighting
Holiday Handbags | GUESS
BharatMatrimony launches office in Dubai targeting 2 Million Indians
HE Sheikh Nahayan Mabarak Al Nahayan, UAE Minister of Tolerance opens In-Vitro F...
Kartik Aaryan attends Danube bash
France Attractiveness Scoreboard 2018 Released
UAE Exchange celebrates UAE National Day in association with RTA
Ring in a dazzling festive season at Ibn Battuta Mall
International supervisory community meets to discuss challenges ahead for global...
UOWD's quality management expert wins ASQ-UAE Quality Professionals Award
Dubai's Most Magical Festive Market Opens at Dubai Festival City Mall
Chinese Manufacturing Companies to Highlight Trade Opportunities in Middle East
Global Knowledge Index 2018 and The Future of Knowledge: A Foresight Report shin...
Festive Gift Sets from Bubble T
UAE Carriers announce aircraft formation to celebrate 47th National Day and Year...
Five-Star Euro NCAP for Jaguar's Electric I-PACE
Dubai Customs wins 3 awards from Ideas UK 2018
Spinneys Dubai 92 Cycle Challenge | Road Closure Timings
Voting on UAE Superbrands 2019 Begins
FBMA and 47 Emirati women celebrate UAE National Day
Al Hosn Now Open to the Public
Get Ready for Party Season with Lottie's new make-up hits
Middle East economies are still dominated by oil sector development
New ACH145 Mercedes-Benz Style Cabin Model Highlights First Presence at MEBAA fo...
Green Hope's November Advocacy
National Hospital offering special UAE National Day Health Package for AED 47th
Michael Kors Collection Transeason 2019 Press Presentation
BMW Group sales increase in October