Crude oil prices soared Monday in a wide-ranging rally that lifted practically all commodity complexes. Even gold, traditionally a safe haven in times of crises, pushed higher-- up $22 from Friday’s close-- thus helping lift the Reuters-Jefferies CRB index to its highest level since January of this year.
Monday’s rally was sparked by the sharp advance in US equities, as buying momentum fed on the snippets of favorable macro news coming out from practically all corners of the globe. Here in the US, it was reported that construction spending rose 0.3% in March for its first increase since September, while a relatively minor housing index-- that of pending U.S. existing home sales-- also rose unexpectedly in March for its second consecutive gain. In addition, the head of the Kansas City Fed said the U.S. economy should pull out of the current economic crisis by the end of the year, while favorable weekend comments by legendary investor Warren Buffet also helped the positive tone. Out of China, an index based on a poll of industry executives rose to a nine-month high of 50.1 in April from 44.8 in March, while out of India, factory activity increased for the first time in five months.
For the time being, the path of least resistance looks to be higher. Markets do not seem to be unnerved at all by the results of the US stress tests due out Thursday, or the non-farm payroll data that comes out the next day. Both of these variables seem to be discounted as nonevents at this stage, but we suspect they are still capable of providing the markets with something of a reality check. More importantly, the global economies still have much work to do before we return to a path of sustainable growth. To illustrate this latter point, one economic analysis we came across notes that here in the US, of the past 11 recessions recorded, eight of them were characterized by a misleading quarter where growth actually increased. If nothing else, this underlines the need for caution about the current buying euphoria that is setting in.
In Other News from Reuters...
* Valero’s 325,000 bpd Port Arthur, Texas, refinery will put a 55,000 bpd hydrotreater back online in the next 48 hours, a source told Reuters.
* The US Minerals Management Service cut its forecast for Gulf of Mexico oil output over the next 10 years by 300,000 bpd to between 1.6-1.9 mbpd.
* Standard & Poor’s said that it placed its ratings on 22 U.S. large regional banks and one thrift on credit watch with negative implications. S&P said that “Our analysis of industry fundamentals, with a focus on the capitalization of the identified companies in the context of our expected level of losses during the next two years, suggests that the likelihood of negative rating actions has increased”.
European North Sea crude oil quotes as reported by Reuters: Nothing reported by Reuters on Monday.
U.S. gasoline/distillate quotes as reported by Reuters: In Gulf Coast trading, M2 was at 8.25c under June. On distillates, ULSD was up at 0.5c under, heating oil was flat at 5.75c under and jet was at 3c under. In New York Harbor, jet was at 0.75c under, low sulfur diesel was down at 2c under, heating oil was at 3c under and ULSD was at 2c over. M2 conventional for May 10 was at 7c under.
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