Oil Prices look like they found support around $86.00 as I expected. After the massive sell-off because of the fears of a global slowdown and massive U.S. supply, oil could start rebounding on the more mundane seasonal and refinery factors. Bloomberg News reported that "Commodity prices are set to fall 2% this year from 2012 amid increased supplies of raw materials from crude oil to grains, the International Monetary Fund said. Energy prices probably will decline almost 3% as supply rebounds from outages last year, the Washington-based IMF said today in an online report. Food prices will drop more than 2% on increasing world harvests, while metals may climb more than 3% on recovering world economies and increasing demand in China, the report showed.
An IMF index of commodity prices is down 9% from a peak in April 2011 while still "elevated compared with historical levels,” according to the report. The Standard & Poor's GSCI gauge of 24 raw materials climbed for a fourth year in 2012 as drought in the U.S. lifted corn and soybean prices to records and dryness in Russia and eastern Europe boosted wheat. "The near-term outlook for commodity prices, as reflected in futures prices, shows broad declines across all main commodity groups, including oil,” the IMF said. "Recent declines in commodity-price volatility reflect improvements in global financial conditions.”
The GSCI has dropped 6.2% this year, compared with a 5.2% increase for the MSCI All-Country World Index of equities and Treasury returns of 0.5%, according to a Bank of America Corp. index. The IMF said its commodity index is up 12% since bottoming in June.
Oil production in nations outside the Organization of the Petroleum Exporting Countries probably will increase by 1 million barrels a day in 2013, "slightly exceeding the growth in demand” and pushing prices lower, the IMF said. Non-OPEC supplies rose by 600,000 barrels a day last year, primarily from the U.S., Canada, China and Russia. "We should get some support from the American Petroleum Institute report that showed that U.S. crude stocks actually fell by 6.7 million barrels. Gas stocks also increased by 253,000 and distillate stocks rose by 1.3 million barrels.
As far as Natural gas the IMF said that "An index of natural-gas prices may "edge higher” this year, led by rising costs in the U.S., the IMF said. Liquefied natural gas in Japan may drop as nuclear-power generation climbs and coal is expected to decline because of environmental restrictions.” We have seen that as Natural gas in the U.0.S continues to work higher. In a world of plunging commodity price natural gas has moved in the opposite direction. Nat gas has acted that way in other oil sell-offs as the play is short oil long gas in cases of commodity weakness. That as well as the improving demand outlook for natural gas should continue to make this market the darling of the commodity funds.
The massive sell off in gold is mainly because Cyprus has agreed to sell its gold reserves, but there is also fear that behind that it could be because of a massive slowdown in global economic growth, terror in Boston as well as fears that global central banks may become sellers instead of buyers of the precious metal. In other words it is not the fact that Cyprus has to sell gold because the amount of gold is miniscule to the global supply and demand but because of the precedent that it sets. If Cyprus is being forced to sell it gold reserves, what about Portugal, Greece, Italy, Spain, Ireland or another EU country that needs a bailout?
Is it possible that this plan to bail-out Cyprus by them selling reserves is the beginning of a reversal of the Central Banks mantra of printing paper and exchanging it for gold? Or could it be a sign that the EU gold reserves that as a group hold the most reserves in the world could use this as the backing for a gold backed euro-bond to help stabilize the zone’s massive debt problems.
Of course for gold is this case of selling the rumor and buying the fact. More than likely the next step for Europe is a euro bond as opposed to signaling to the market that they are going to start unloading their massive reserves. The market, while it needed to correct, is probably closer to a bottom than a top and while the confidence in gold may cause some extreme volatility in the short term when we level out we should see a major comeback.
The drop in gold could also alter the longer term supply outlook. The AFP reported "Gold miners have watched their screens in shock since Friday, as the price of the key gold futures contract has plummeted a staggering US$204 an ounce, or 13%. That is the biggest percentage drop since 1980, and even if it is temporary, it sends a strong message to companies that they need to lower costs, eliminate unnecessary capital spending and put a halt to all marginal projects. "People are going to have to look at their all-in costs very seriously and whether they can survive or not,” said Gerald Panneton, the chief executive of Detour Gold Corp. "Companies will cut back, companies will not put projects in production. And a lot of companies will not survive this.”
And low prices may spark demand. Dow Jones is reporting that "Indian gold imports are likely to rise to around 900 metric tons this year thanks to falling prices coinciding with the peak marriage season, industry executives said Wednesday. Prices fell last week at the quickest pace in 30 years, reviving consumer appetite damped since January-end when the gold import tax was raised to 6% from 4%.