We start the New Year with the U.S. better supplied with oil (NYMEX:CLG14) than at any time in history. Now the market will focus on the demand side as we start the slow road back to normal markets after the extended holiday trade. Supply in the U.S. should start a seasonal upward trek at a time when the tax consequences of oil inventory are far off into the future. Overnight it seems that Europe’s manufacturing sector is doing better than most thought and China is doing a little worse. The Purchasing Managers’ Index, compiled by HSBC and Markit, eased to 50.5, unchanged from the initial “flash” reading released earlier last month but lower than the final November print of 50.8. It marked a three-month low for the index. In Europe the manufacturing purchasing managers' index for December came in with a 52.7 reading as Germany beat expectations but France missed.
The data in China should put a damper on demand expectations, yet on the Brent side of the pond there are still concerns about if and when Libyan supply will be exported and the ongoing civil war in South Sudan.
Gasoline prices (NYMEX:RBG14) should continue to work lower in the New Year. Others are now joining my call that long-term gasoline prices have peaked. While we will see fluctuations and can be influenced by major events, we are seeing the end of the high gasoline price era. It won’t happen overnight but the trend will continue lower in the long term.
Natural gas (NYMEX:NGG14) saw a mass exodus as traders locked in profits ahead of the New Year. Yet with a winter blast hitting much of the nation and an Energy Information Administration supply report it may be a good day to try to buy a break. I am looking for a 180 bcf draw.
Gold (COMEX:GCG14), the worst market of the old year, is probably the most undervalued of the New Year. A big pop overnight after failed attempts to break and close under the $1,200 area may signal a bottom. Compared to stocks and historic trends, either gold is way too cheap or stocks are way too expensive. In 2014 something has to give. If you have all of your exposure in stocks it may be time to allocate some of those profits back to precious metals. Traders who are in and out should favor the long side on breaks.
Industrial metals are doing well with copper (COMEX:HGG14) hitting a seven-month high. Platinum and palladium are looking strong as well.