Commodities Update

stock-market-updateCommodities were mostly higher yesterday as energy futures jumped on bullish production data, however, both gold and copper underperformed with mild losses. The commodity ETF, DBC, added 0.93% on the day.

Metals traded inverse to the dollar yesterday, which initially rallied on solid economic data but then pulled back to close only slightly higher after the FOMC minutes. Gold closed basically flat, down just 0.05%.

Gold continues to trade as a small piece of the broader Trump On/Trump Off trade across asset classes. But with Trump On remaining the more dominant force after stocks reached new highs last week, and bond yields still handily higher than they were ahead of the election, gold is likely to continue to underperform.

Copper closed at a new high on Tuesday, and yesterday’s early strength in the dollar led to some modest profit taking. Futures closed down 0.51%, but the primary trend remains bullish not only for copper, but the rest of the industrial metals.

EIA Report Analysis and Oil Update

The headlines in yesterday’s EIA Petroleum Status Report were bearish; however, the details were bullish as production figures showed a reversal of the recent trend higher in US output. WTI crude oil futures finished the day up 1.33%.

Oil stockpiles reportedly rose 6.5M barrels last week vs. estimates that called for a much more modest 3.3M barrel build. The EIA build also was larger than the 5.8M barrel build reported by the API late Tuesday, so the oil headline was decidedly bearish from a supply standpoint. Refined products headlines also were bearish with RBOB gasoline inventories rising to 3.9M barrels vs (E) 1M bbls while Distillate stocks rose 1.6M bbls vs. (E) -900K.

Traders remain in “speculation mode,” and are paying especially close attention to US production figures as well as overseas output data amid the agreement to reduce pump rates in an attempt to support prices.

Lower 48 production (which we watch because it filters out the occasionally volatile Alaskan data) declined by 45K b/d last week, the first pullback in five weeks. Despite the decent decline in output, the 2017 weekly average change is still positive at 36.5K bbls/day.

Bottom line, the near- and long-term outlooks for the oil market are conflicted. Near term, $53/barrel in WTI remains magnetic, but headlines regarding global production cuts and quota compliance could keep the sellers strike alive, and result in a modest move higher towards $60 a barrel.

Longer term, the trend in US output remains positive and total US production still hovers near the highest levels since April of last year.

If that trend continues, rising US output will continue to offset the efforts of the OPEC/NOPEC coalition who are working together to support prices—which is ultimately bearish long term.

 

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