Crude oil conflicted by Ukraine risk

The U.S. jobs report was so last week's news.

This week is all about China and the Ukraine. Markets from oil (NYMEX:CLM14) to wheat to platinum are moving on China and Ukraine's weak China data and increasing risk in the Ukraine has the oil market conflicted. On one hand the weak manufacturing data should raise concern about oil demand expectations and on the other the potential of a civil war in the Ukraine will keep the market guessing. The HSBC Purchasing Managers' Index (PMI) for April came in at 48.1, weaker than the flash reading of 48.3, yet above the 48.0 reading in March and is not the type of number that suggests strong Chinese demand. Bloomberg News reported that heavy fighting in Slavyansk in the country's east, while clashes in Odessa yesterday left two people injured, Interfax reported.

The gold (COMEX:GCM14) market also is breaking out. The risk that Russia' stumbling stock market could spread the paying to other emerging markets has traders seeking safe haven in gold. Reuters reports that Gold hit three-week highs on Monday in thin trade, extending the previous session's gains, as simmering tensions in Ukraine, a retreat in the dollar and a break above a key chart level fuelled buying. Investors remained cautious on whether the gains can be sustained, however, as several markets were closed and as outflows from the top physical gold exchange-traded fund continued to indicate bearish sentiment.

Spot gold was up 1 percent at $1,312.60 a troy ounce by 0930 GMT, after rising to $1,315.00 earlier, its highest since April 15. Liquidity is expected to be thin with London markets closed for the May Day holiday. U.S. gold futures for June delivery were up $9.90 an ounce at $1,312.80.  On Friday, the metal hit a one-week low of $1,276.60 after strong U.S. jobs data, but reversed losses to end the day up 1.3 percent on a sharp increase in the number of people dropping out of the workforce and rising Ukraine tensions.

China has been active buyers in the physical markets, Chinese buyers were active, precious metals house MKS said in a note. "We had a bit of an unexpected surprise when China opened up, with some heavy buying going through," it said. "The Shanghai Gold Exchange traded up to a premium of around $3-5 over spot and more importantly the Shanghai Futures Exchange traded higher than the SGE for the first time in weeks, suggesting that the Chinese general public (non institutional) investors were in covering shorts."

Weakness in investment has pressured gold in recent weeks. The SPDR Gold Trust, the world's largest gold ETF, said its holdings fell 2.70 tons to 782.85 tons on Friday, bringing its outflow for the week to nearly 10 tons. Hedge funds and money managers cut their bullish bets in gold futures and options, data from the Commodity Futures Trading Commission showed on Friday.

Silver (COMEX:SIM14) was up 0.9 percent at $19.61 an ounce, while spot platinum was up 0.6 percent at $1,440.30 an ounce and spot palladium was up 0.3 percent at $810 an ounce. South Africa's Association of Mineworkers and Construction Union (AMCU) said on Monday its striking members had rejected the latest wage offer by the world's three biggest platinum mining companies. The strike has been running for nearly four months at Anglo American Platinum, Lonmin and Impala Platinum, and has hit 40 percent of global production of the precious metal.

Wheat (NYBOT:JWN14) prices also hit the highest in more than a year as violence in Ukraine spread to the country's main grain-export port of Odessa, increasing concerns of supply disruption, and after drought and freezing weather damaged the U.S. crop. Odessa and four other Black Sea ports handle 87 percent of Ukrainian grain exports.

Trilby Lundberg the goddess of gas is predicting that gas will soon top out. I agree! Bloomberg News reports that the average price for regular gasoline at U.S. pumps rose 3.07 cents in the past two weeks to $3.7225 a gallon, a 14-month high, according to Lundberg Survey Inc. The survey covers the period ended May 2 and is based on information obtained at about 2,500 filling stations by the Camarillo, California-based company. Prices have been rising since a low on Feb. 7 and are the highest since the company's March 8, 2013 survey, Lundberg said. The average is 17.678 cents higher than a year ago and up 37.66 cents since the Jan. 10 survey to start the year.

"This price increase is doomed to reverse itself now," Trilby Lundberg, the president of Lundberg Survey, said in a telephone interviewSunday. "With crude oil much lower and refineries running at very high rates producing refined product, that means more gasoline at lower prices." The highest price for gasoline in the lower 48 U.S. states among the markets surveyed was in Los Angeles, at $4.27 a gallon, Lundberg said. The lowest price was in Albuquerque, New Mexico, where customers paid an average $3.34 a gallon. Regular gasoline averaged $3.93 a gallon on Long Island, New York.

The AP reports that Vietnam demanded China stop oil drilling operations in a disputed patch of the South China Sea, saying on Mondaythat Beijing's decision to deploy a deep sea rig over the weekend was illegal. China dismissed the objections, saying the activity was being carried out in its territorial waters. Beijing's increasingly assertive territorial claims to the waters, which are thought to have large oil and gas deposits beneath them, have angered Vietnam, the Philippines and other claimants. The region is widely seen as a potential area of conflict.

Last week, President Barack Obama signed a new defense pact with the Philippines aimed at reassuring Asian allies of American backing as they wrangle with Beijing's growing economic and military might. The China Maritime Safety Administration posted a navigational warning on its website advising that the CNOOC 981 rig would be drilling in the South China Sea from May 4 to Aug. 15, in an area close to the Paracel Islands, which are controlled by China but Vietnam claims as its own. China's maritime administration also said that ships entering a 3-mile (4.8-kilometers) radius around the area are prohibited.

Vietnam's foreign ministry said the area where the rig was stationed lay within Vietnam's exclusive economic zone and continental shelf as defined by the 1982 U.N. Convention on the Law of the Sea. "All foreign activities in Vietnam's seas without Vietnam's permission are illegal and invalid," the ministry said in a statement. "Vietnam resolutely protests them."

 
About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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