Daily Comments
Oil ends lower ahead of this week’s deluge of data and on weaker equities
31.08.2010 8:14:00
Crude for October delivery retreated 47 cents to USD 74.70/bbl on the NYMEX. Other energy products also retreated, but natural gas bucked the trend to end higher. London Brent crude for October fell 5 cents to settle at USD 76.60/bbl.
What we saw yesterday was a slow start of a week scheduled to witness the release of many macroeconomic data, including a report on manufacturing activity due on Wednesday from the Institute of Supply Management and the ISM's report on the services sector on Friday, when the government's closely watched August nonfarm payrolls report also is due out. Thus, investors were in no hurry ahead of these key market-moving data.
Also weighing on energy futures was Hurricane Earl, which was upgraded to a Category 3 storm heading towards Puerto Rico and could hit the eastern seaboard later this week. Although we think Earl is unlikely to disrupt oil-producing and refining areas in the Gulf of Mexico, it is reminding investors that the hurricane season is reaching the peak period.
The petroleum market came under downside pressure at the start of the week as it continues to track the stock market and the euro to a lesser extent. US stocks moved lower as remarks from US President Barack Obama on the economy were not able to ease investor anxiety over the slow pace of recovery. Obama said he and his economic advisers are discussing additional steps to generate job growth, such as more tax cuts for businesses. Oil received a modicum of support from news that US consumer spending rose in July, while incomes rose, but less than expected. The dollar index was stronger and the euro was weaker versus the dollar.
Moving forward, as investors watch the lineup of macro data out of the US this week we do not expect to see much buying pressure as double-dip recession fears and caution are driving the market right now. We therefore think there is more than a 50% chance that Brent will slip below USD 75 and NYMEX crude will head back towards the USD 70 level again.
