Commodities began the week higher primarily on a sharp move lower in the US Dollar Index Monday night. Natural gas stood out from the crowd gaining ~11% this week after recently hitting a 7-yr low. Silver rose 3.6%, crude rose ~2.9%, gold, copper and aluminum were essentially flat. Ag futures ended the week mixed.
Looking more closely at energy, October crude oil futures rose ~2.9% on the week to ~$69.22/barrel. Crude began the week sharply higher (gaining ~5% Monday) on a weaker dollar and strength in equity markets. After Monday's sharp run, crude traded in a very tight range for the rest of the week well under highs for the week of $72.38/barrel. Crude's weekly inventory data was mixed, with a much larger than expected draw in crude oil investories (bullish) being offset by larger than expected builds in gasoline and distillate (bearish). Crude oil inventories had a draw of 5906K (consensus is a draw of 1850K).
After weeks of bleeding lower, Natural gas futures surged 10% this week, triggered by inventory data on Thursday, but closed just below the $3 level at $2.99. Although the data marked the twenty-third consecutive build, the slightly smaller than expected build (69bcf vs consensus build of 72bcf) was enough of a catalyst to cause a sharp reversal off of 7-year lows. This buying, coupled with some short covering, helped nat gas maintain its upward trend throughout Thursday's session and into Friday, when it extended to fresh week-highs of $3.424. Nat gas closed 9.6% higher at $2.99 per MMBtu.
We also saw a developing theme within the small-cap oil & gas stocks this week, with speculative momentum money flowing into the group this week. Momentum money tends to move from group to group in search of stocks that haven't yet seen outsized gains, and this week more of that money is flowing into the lower-tier, small cap oil & gas stocks. A number of these stocks have spiked over the past few days (including RAME, PLLL, QELP, CEP, BRNC, KOG, GIFI, HERO), and several showed big percentage gains today list again today, including: TIV +174%, WRES +28.3%, DPTR +12.5%, BRNC +12.3%, EXH +11.0%, GSX +10.8%, IVAN +9.3%, EROC +7.9%, CPE +6.8%, CFW +5.6%, EPM +2.8%.
In the precious metals complex, Dec gold and Dec silver futures opened in positive territory in pit trading on Tuesday on the weaker dollar. Gold traded around the unchanged line throughout the week, touching lows of $996.30/oz. on Thursday, but finished the week modestly higher and above the $1000/oz level. Silver traded higher for most of the week, dipping into negative territory briefly on Thursday and erasing those losses to end the week higher at around $16.75/oz. In industrial metals, copper futures fell ~1.1% as China imports fell 20% in August, as the country has slowed stockpiling some commodities. The biggest news in the ag space was negative earnings guidance Monsanto (MON) issued for FY10 on Thursday morning, which has since pushed the stock almost 7% lower. The co issued downside FY10 earnings guidance and reaffirmed FY09 earnings guidance at the lower end of its range. Also, the USDA released its September supply/demand report, which was mixed for corn futures, bearish for wheat, while the soybeans data was mixed to slightly bearish. Also, crop progress conditions were reported earlier in the week, but were a non-event as the data was neutral for corn, wheat and soybeans. Harvest season is approaching and two catalysts will drive crop prices in the near-term, outside of the dollar: 1) Frost risk over the next month and 2) The percentage of crops farmers keep in their storage to hold and save until prices rise.
In the dry bulk shipping sector, the cost of renting ships rose modestly this week, as indicated by the benchmark Baltic Dry Index (BDI). The index inclined 2.2% on the week to 2468. Despite the modest gain, an oversupply of ships still remains a key issue (e.g. Capesizes).
Provided by New Edge Research