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Oil Traders Expect Producers to Control Supply; FOMC Minutes, US CPI and Retail Sales in Focus Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Sun Oct 08 17 22:05 ET

Crude oil prices recovered mildly after falling last week. Traders tend to believe that the OPEC/non-OPEC producers would strive to rebalance the market. As suggested by OPEC Secretary-General Mohammad Barkindo on Sunday, "there is a growing consensus that, number one, the re- balancing process is underway... Number two, to sustain this into next year, some extraordinary measures may have to be taken in order to restore this stability on a sustainable basis going forward".

For the week ahead, the annual meeting of the World Bank and the IMF would be held from October 13-15. Geopolitical tensions are expected to intensify as North Korea celebrates the founding of the communist party on October 10. Last week, a Russian official noted that North Korea is planning to test a long-range missile which could reach the west coast of the US, while Donald Trump threatened "only one thing will work" with the pariah state.

The Fed would release the minutes for its September meeting on Wednesday. The September inflation report would be due Friday. Headline CPI probably accelerated to +2.3% y/y, from +1.9% a month ago. Core CPI might have improved to +1.8% from +1.7% in August. Retail sales might have expanded +1.5% m/m in September, after contracting -0.2% in the prior month. Sales ex auto should have gained +0.9%, up from +0.2% in the prior month. The preliminary reading of University of Michigan confidence index probably stayed unchanged at 95.1 in October. Released last Friday, US nonfarm payrolls surprisingly contract -33K in September, following an upwardly revised +169K addition a month go. The market had anticipated an increase of +77K. The unemployment rate, however, slipped to 4.2% from 4.4%, as expected and in August. Average hourly earnings grew +0.5% m/m in September, beating consensus of +0.3% and August's +0.1%. Bets for a December rate hike continued to increase with the market pricing in a 90.6% of a hike after the payrolls report, up from 87.8% in the prior day.

As the Chinese market reopens after a week-long National Day's holiday, we have got the latest report of the Caixin/Markit services PMI which fell to 50.6 in September, from 52.7 a month ago. This marks the lowest reading since December 2015. The composite output Index, encompassing both manufacturing and services activites) dropped -1 point to 51.4 last month, the weakest since June. As the agency noted, "the Chinese economy generally held up well in the third quarter. However, the expansion in both manufacturing and services cooled in September, suggesting downward pressure on economic growth may re-emerge in the fourth quarter". Friday comes China's trade report which probably shows a narrowing of trade surplus to US$ 38.1B in September from US$ 42B a month ago.

Commitments of Traders

Speculators were bearish over the energy complex in the week ended October 3. Net LENGTH for crude oil futures plunged -9 792 contracts from a week ago to 444 316. NET LENGTH of heating oil decreased -3 798 contracts to 55 296 while net LENGTH for gasoline fell -5 839 contracts to 75 437. Net SHORT for natural gas increased +15 609 contracts to 74 175 for the week.

Speculators were bearish over the precious metal complex last week. Net LENGTH for gold plummeted -8 739 contracts to 203 855, while that for silver futures fell -1 081 contracts to 59 179. For PGMs, net LENGTH for platinum declined -3 434 contracts to 21 929 while that for palladium dropped -125 contracts to 20 518.


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