Oil (NYMEX:CLQ13) had a hard time deciding whether or not it wanted to continue its upward trajectory. While Egypt continues to simmer and we saw more violence, the truth is that the fears of an immediate risk to supply seems to be waning. Yet in China, could the risk of inflation be rising?
A civil war or acts of terror may delay shipments through the Suez Canal yet the probability of that happening seem to be less. The market seems calmer despite an attack yesterday by the Islamist Muslim Brotherhood on an Army area that could be holding President Morsi that led to the death of 51 people and the fact that the Muslim Brotherhood called "on its supporters" to take to the streets on Tuesday to protest the army actions. The markets seem a little less stressed perhaps because they feel with the markets open they will have time to react if they need to.
China said its June consumer price index rose 2.7% more than the 2.5% expected. Last month inflation came in at 2.1. The number gave gold (COMEX:GCQ13) a boost. Gold has been trying to find a bottom after dipping below $1,200, an area most people believe is the nominal cost of production. Gold has a strong tendency to rally in the second half of the year. This seems to be the case even in "bear markets" as seasonal demand starts to rise.
We also have the weather to worry about as Tropical Strom Chantal is in the back of traders' minds. Yet the track of that storm seems to be moving further to the East so the biggest threat to oil supply may be the delay of Gulf imports. Last week oil saw support from a big drawdown in Gulf supply. That was probably because of pipeline issues that slowed imports to the U.S. from Canada. Supply that might have made it to the Gulf probably stayed in the Mid-West
On the sugar (NYBOT:SBV13) front, Dow Jones reported that India raised its import tax on sugar to 15% from 10% effective immediately. First gold, now sugar what is next! Watch the ethanol, especially if you consider the explosive run-up in the grain market. Late plantings and now heat is raising questions about the size of the U.S. crop. The USDA updates its estimate July 11 as many traders believe that the overly optimistic estimate of 14.005 billion bushels of corn (CBOT:CU13) will have to be slashed. If the weather becomes hot and dry, the market might start moving like soybeans did. Soy rallied not only on the weather but on a strike by sailors in Argentina's Timbues/San Lorenzo port. Soybeans and soy meal look like they are getting ready for a significant upside move.
RBOB Gas, even with last week's 1.72 million barrels drawdown and a 4% uptick in demand, we still have the highest amount of supply for this time of the year since 1992. Still with oil moving and stocks rocking RBOB may bounce on any oil pop.