Crude oil price retreated in European session. As the market awaits the OPEC’s monthly oil report, we expect the cartel would acknowledge that US’ imports of OPEC’s oil have continued to decline and a key reason to the situation is the rise in US production. Although OPEC remains contributing over 35% of the US crude imports, the amount has been on the fall steadily since the second half of 2008. In terms of volume, Saudi Arabia and Venezuela take up almost 60% of US’ imports from the OPEC while Angola and Nigeria have shown sharp declines. The implication on Brent crude is that, with the US a less popular destination for exports, producers would need to compete with other (such as Dubai crude) for shipment to other countries, such as those in Asia.
The market would probably be concerned about the new forecasts of global oil demand which are traditionally the most bearish one among the 3 major oil agencies (OPEC, IEA and EIA). The focus is whether there would be a downgrade on China’s demand outlook. If there’s such a case, we would expect the OPEC to consider production cut in coming months.
In the near-term, gold’s outlook should remain damped with ETF holdings weakening further and speculative positions of CFTC futures declining last week. The SPDR Gold Trust reported that holdings have dropped to 39.76M oz, the lowest level in October 2011, as of Monday. Speculative long positions of gold futures fell to 107.58K contracts in the week ended March 5, down -28.3% since the beginning of the year. Meanwhile, retail demand has been soft since the beginning of the year with the US Mint reporting gold coin sales of 25K oz so in March.
On the dataflow, final estimate of Germany’s CPI stayed at +0.6% m/m in February. UK’s industrial production fell -2.9% y/y in January after a downwardly revised -2.1% a month ago. Manufacturing production slipped -3.0% y/y, following a -1.6% drop in December. Trade deficit narrowed to 8.2B pound in January from 8.9B pound in the prior month.
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