Oil prices snapped a 10-day winning streak on Thursday, as a stronger dollar and a long-overdue bout of profit-taking set in. Also troubling the markets, was news that the Chinese central bank raised interest rates in its most recent three-month bill auction, which participants interpreted as a signal of impending tightening. However, despite Thursday's modest sell-off, crude markets remain quite overbought, (see our chart in our attachment), with our RSI indicator still quite high.
We suspect the next "inflection point" as far as price direction is concerned could come later on Friday when non-farm payroll data is released out of the US. Expectations are calling for an unchanged reading, but given the surge in temporary hiring of late and the recent dip in initial claims data, we think the number could surprise to the upside. In such a case, the dollar should have a good bounce higher, but a positive reading could also unsettle the US bond and equity markets, impacting commodities in the process. We have to wait and see what ultimately happens, but given that most commodity complexes are still quite overbought, the sector looks ripe for a healthy correction. All the bears are in need of is for a trigger to set off the selling--the stronger dollar could very well do the trick, particularly if the numbers indeed surprise higher.
In Other News from Reuters
* Natural gas stocks drew by 153 billion cubic feet in line with the Reuters estimate calling for a 151 bcf draw.
* The CFTC said Thursday it will hold a public meeting on January 14 to consider whether to issue a proposed rule on energy contract position limits and related hedge exemptions. The rule would apply to trading on futures exchanges, derivatives transactions, and electronic trading facilities. "I'm hopeful that this meeting will move us forward so that we can get on with doing our jobs to ensure efficient and effective markets and protect consumers from fraud, abuse and excessive manipulation," a CFTC commissioner was quoted as saying.
* Gas oil inventories in Amsterdam-Rotterdam-Antwerp grew by 124,000 tons to 2.731 million tons last week due to the cold weather that prompted cargo to move into storage tanks, this according to Dutch oil analyst Pieter Kulsen. Bunker fuel stocks rose by 39,000 tons to 935,000 tons, naptha stocks rose to 89,000 tons from 70,000 tons, and jet fuel inventories grew to 882,000 tons from 800,000 tons.
* On the heels of new oil contracts, Iraq is preparing for the logistical challenge of exporting larger volumes of crude in the future and plans to begin crude oil shipping operations in March, according to the head of Iraq’s State Oil Marketing Organization. "We want to get familiar with this business for the future," Falah Alamri, the head of the organization told Reuters. "We have to prepare ourselves for when exports are three or four million barrels per day in a few years.".
* In a related item, Iran and Iraq have begun negotiations over a disagreement regarding Iran’s seizure of an inactive Iraqi oil well in an area along the border of the two countries.
* The Royal Bank of Scotland received offers worth nearly $4 billion from Deutsche Bank, JP Morgan Chase and Macquarie for the 51% share of its commodities joint venture RBS Sempra, according to industry sources.
* Singapore onshore light distillate stocks increased by 17.5% in the week ending Jan.6, to hit a six-week high of 11.112 million barrels, data from International Enterprise showed. Onshore stocks of diesel and jet fuel rose by 7% to reach a two-week high of 14.864 million barrels.
U.S. gasoline/distillate quotes as reported by Reuters: In Gulf Coast trading, cycle 4 gasoline was at 3.70c under. On distillates, prompt ULSD was at 3c under, heating oil was at 4.25c under and jet was at 1.75c under. IN New York Harbor, ULSD traded at 0.75c under and prompt barrels of heating oil were at 1.50c under. M5 traded at 0.25c under and F5 was at 1.75c under.
European North Sea crude oil quotes as reported by Reuters: A Forties cargo for Jan. 21-23 sold at dated minus 45c. In Rotterdam, complex margins for Brent averaged 70 cents a barrel, down from the average of $1.90 over the past five days.
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