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Market Watch -by Rothman Securities Inc. (Sept. 29, 2010)
The weak dollar helped support the appeal of commodities. The Eurozone data were mixed. Potential supply shrinkage in Crude oil led to a rally in gasoline and crude prices.
However, record-high US commercial crude and refined petroleum product stocks, as well as the weak Eurozone economy pressured the market into capping prices. WTI closed the week at $76.49 per barrel, up $2.83 from a week earlier.
The dollar fell to a seven-month low against a basket of currencies as investors continued to expect the Federal Reserve to pump more money into the financial system to bolster the economy. The weak dollar helped support the appeal of commodities. Gold also received a boost from dollar depreciation, hitting a record high near $1,300 an ounce.
The relatively strong US housing sector was welcome news for the market. Housing starts jumped 10.5% in August while existing home sales rose 7.6% and new home sales held steady after a big decline in July. In addition, durable goods orders, excluding transport, rose 2% in August.
The Eurozone data were mixed. The European Purchasing Managers Index slumped to 53.6 in September, the lowest reading since February. However, a surprise increase in German business confidence to a three-year high revived recovery hopes.
Later in the week, ConocoPhillips started a 45-day shutdown of Bayway in New Jersey, a key 238,000-bpd refinery in the US Northeast, to prepare for the startup of a new crude distillation unit. The potential supply shrinkage led to a rally in gasoline and crude prices.
Earlier, pressure from the surprise rise in US commercial crude and refined product inventories to a record high of 1.144 billion barrels hurt prices. Crude stocks alone rose 970,000 barrels against the forecast of a drawdown due to a large jump in imports. The market had expected crude stocks to fall sharply as a result of the shutdown of the major Enbridge pipeline from Canada and stormy weather that delayed tankers.
Rothman Securities Inc. estimates the trading range for WTI this week to be between $72 and $78 a barrel with possible support from Tropical Storm Matthew, which has formed over the western Caribbean and is expected to develop into a hurricane and reach the oil-rich Gulf of Mexico.
However, the impact of a hurricane may be hampered by weak US economic data such as final second-quarter GDP and the manufacturing index. Other data being monitored are consumer confidence, weekly jobless claims, and personal income.
Gasoline prices in Singapore traded at $82 a barrel on Friday, down nearly $1 from a week earlier, due to lower crude prices in Asia. Fundamentally, the gasoline market remained weak in the absence of buying interest and a lack of arbitrage opportunity to send excess barrels out of the region. Inventories in Singapore fell by 10.8% on the week given higher imports from Indonesia and Vietnam compared with the previous week. The outlook will likely remain bearish throughout October due to reduced import demand from Indonesia. Traders are also eyeing fourth-quarter import requirements from Vietnam.
An easing supply glut in Asia helped maintain diesel prices in Singapore at last week's level of around $87. Several gas-oil cargoes have been moved from Asia to Europe where supplies were tighter due to refinery maintenance. Demand was also stronger due to high imports by Germany, the biggest heating oil consumer in Europe, ahead of winter. Higher outflows to the West as well as firm imports from Indonesia resulted in a 6.1% decline in middle distillate stocks in Singapore. The diesel market is expected to be firm on tighter global supplies due to the upcoming heating oil stockpiling season and pre-winter maintenance in the US, Europe and North Asia.
However, weak regional demand and slower import demand from Indonesia and India next month could cap strong gains in diesel prices.
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