HardAssetsInvestor

Written by Sumit Roy  |

February 10, 2012

Week In Review: Energy Outperforms As Brent Eyes $120, Platinum Set To Continue To Outpace Gold

Details

We examine the latest developments in commodity markets and the week’s performance.

With the exception of the energy sector, most commodities fell this week as traders took profits. But the outlook for the asset class remains supportive amid loose monetary conditions and accelerating economic growth.

Macroeconomic Highlights

On the macro front, U.S. economic data continues to show improvement. The number of people filing for unemployment claims fell to 358K last week, near the lowest level since early 2008.

In the U.K., as expected, the Bank of England expanded its quantitative easing (bond-buying) program by 50 billion pounds, to 325 billion.

Meanwhile, China’s consumer price index rose by 4.5 percent year-over-year in January, a higher rate than the 4 percent that was expected, and up from 4.1 percent in December. All else equal, a higher inflation figure makes it less likely that the country’s central bank will loosen monetary policy. Nevertheless, the overall trend has been for a slowing in China’s inflation, the latest figure notwithstanding.

Finally, Greek lawmakers and the EU and IMF reached a deal on budget cuts and reforms on Thursday, but that deal was in question on Friday. Greece must clinch a deal soon in order to receive its second bailout, or it faces the prospect of default when its funds run out in March.

Commodity Wrap

• Crude oil was the best-performing commodity of this week, as we saw a major breakout in Brent. The benchmark surged to six-month highs just below $119 after breaking above the key $115 resistance level early in the week.
  
  Brent:
  
  
  
  

  Though it lagged, WTI managed to rally as well. The spread between it and Brent widened to as much as $20.70, but was last trading near $19. As we explain in our latest Crude Oil Report, the spread between WTI and Brent is due to an oversupply of crude oil in Cushing, Okla., and the broader Midwest region.
  
  WTI:
  
  
  WTI-Brent Spread:
  
  
  Looking forward, Brent now has a clear path to test the next resistance levels at $120 and $127. Nevertheless, demand is weak as evidenced by plunging consumption in the U.S., which hit the lowest levels in 13 years last week. Rather, it is supply concerns amid escalating geopolitical tensions in Iran, South Sudan and Nigeria that are supporting the market.
  
  

• Natural gas price action was lackluster this past week, but the fuel managed to hold its own. Yet the supply glut continues to balloon; the latest figures from the EIA showed that inventories in the U.S. are 714 bcf above the year-ago level and the five-year average.
  
  Moreover, weather forecasts show warmer-than-normal temperatures forecast for the major consumption regions of the U.S. over the next two weeks.
  
  On the supportive side, prices are holding above the recent $2.23/mmbtu low, suggesting that a rally is possible in the event that temperatures finally cool down.
  
  Natural Gas: