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Busy Week Ahead, UK election, ECB, Chinese CPI... Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Mon Jun 05 17 00:45 ET

Crude oil prices on Monday recovered after the selloff last week. We expect prices to remain volatile for the week ahead as we are awaiting UK's general election, ECB meeting, as well as former FBI Director James Comey's testimony on Capitol Hill. The market appears to have shrugged off the potential positive impacts of OPEC/non-OPEC extension of output cut, as US shale investments and the increase in production by OPEC members that are exempted from the deal might more than offset the output cut. US President Donald Trump's decision to withdraw from the Paris climate accord would only worsen the situation as it would even be more difficult curb US production. We are seeing lid on crude oil prices at around US$ 60/bbl.

We have a busy week and exciting week ahead, with all important events accumulating on June 8 (Thursday). The UK general election in the midst of terror attack would probably be a very uncertain one. Despite suggestion to delay the election, senior Cabinet minister David Davis indicated that there is no way to legally suspend or delay the general election following Saturday's terrorist attack at London Bridge. PM Theresa May affirmed on Sunday morning that the election "will go ahead as planned". The latest average poll suggests that Tories lead over Labors shrank to +8.3% over the weekend, from about +20% shortly after the election was called. We believe the market would be disappointed if Tories' seats reduce 2015's 330, or Tories' majority is less than 50 seats, compared with expectation of over 100 seats shortly after the snap election was announced. It would be a disgrace to PM May as her rationale to call for the snap election in the first place was to consolidate support for the Conservative Party, and more importantly for herself, in the Brexit election with the EU.

Recent strong confidence data and hard data have raised speculations that the ECB would change to a less dovish tone in the upcoming meeting on June 8. Hopes are rising that the policymakers would take a more benign view of the economy. They might even drop some of the commitments to increase stimulus, if needed. Tapering announcement is unlikely in June. However, a more upbeat ECB might pave the way for a tapering announcement at the September 7 meeting.

China would likely catch the focus in terms of macroeconomic data. The services PMI by Caixin/Markit rose to 52.8 in May, from 51.5 in April. This marks the first uptick this year and the fastest growth in 4 months. The reading also beat consensus of a drop to 51.4. According to the agency, "the new business sub-index hit the highest point since December and the input costs sub-index signaled stronger cost pressures". It added that "the improvement in the services sector bolstered the Chinese economy in May. However, the rapid deterioration in the manufacturing industry is worrying". China would release it trade report on Thursday and the inflation report on Friday. Headline CPI probably accelerated to +1.5% y/y in May, from +1.2% a month ago. PPI might have slowed further to +5.7% y/y in May from +6.4% in the prior month.

Commitments of Traders

With the exception of natural gas, speculators were bullish over the energy complex in the week ended May 30. Net LENGTH for crude oil futures gained +766 contracts from a week ago to 373 755. Net LENGTH of heating oil rose +1 130 contracts to 17 188 while net LENGTH for gasoline rose +6 303 contracts to 41 388. Net LENGTH for natural gas dropped -22 029 contracts to 30 641 for the week.

Speculators were also bullish over the precious metal complex last week. Net LENGTH for gold jumped +7 323 contracts to 167 090, while that for silver futures soared +10 241 contracts to 61 414. For PGMs, net LENGTH for platinum gained +759 contracts to 17 046 while that for palladium rose 386 contracts to 17 916.

 

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