10-05-2016

Crude Oil, Nat Gas may remain highly volatile this week

COG

Precious Metals ended slightly in red in what could be called a volatile week with Gold losing about half a percent to close at $1288.83 and Silver down nearly two percent to close at $17.48. The range bound activity could be largely attributed to weaker than expected data from the US which reduced chances of a June rate hike. 

Crude Oil lost 2.74% to end the week at $44.66 whereas Natural Gas lost over 3.50% to close at $2.101. Reports suggesting increased production activity from the OPEC, Russia and Iran kept prices under pressure with further news that US supplies increased more than expected weighing in on prices. Base Metals also lost heavily with Aluminium being the worst performer, losing 5.26% while Copper was down 4.76% to end the week at $4823.0. 

Gold prices are once again settling into a range of $1270 - $1300 (Rs.29850-Rs.30600) and the immediate term trend will be decided only with a breakout/down of the current range. While technically, our view remains positive on bullions, recent fluctuations in prices are likely to keep prices volatile. A break below $1270 (Rs.29850) is likely to push prices lower to $1250 (Rs.29650) this week while upsides should be limited to $1300. Base Metals are expected to trade with a negative bias this week. 

Copper is expected to test support at $4600 (Rs.309) this week and possibly lower. Amongst the rest of the group, Aluminium and Nickel are likely to perform worser this week and short are recommended in both the metals with support from Copper in the short term. 

Crude Oil and Natural Gas is likely to remain volatile this week and trade with a negative bias. On the downside, oil finds support at $43.50 (Rs.2900) and is likely to test the level this week. Fundamentally, the situation remains precarious at best with US supplies continuing to grow further while production disruptions from the Middle East negating the effect. Natural Gas should fall further as prices head into supply season. 

On the economic releases front, we have a light week ahead with key releases scheduled on Friday. Crude Oil Inventories are due on Wednesday followed by Natural Gas Storage and Unemployment Claims on Thursday. On Friday, we have Retail Sales, PPI and Consumer Sentiment which is likely to keep traders engaged. 

CFTC Positions have shown large changes in the previous week ending Friday. Managed Money net long positions for Gold have gained to a 4 year high at 233,638 contracts, up 27% from last week. Net longs for Silver have dropped 4.60% indicating that the bullish trend was not replicated in case of Silver. Net length in Crude Oil also dropped almost 5% till last Tuesday whereas shorts in Natural Gas saw a 43.40% increase in the previous week.

Source: Commodity Online(Sam Nair is Head of Commodities Research, Celebrus Commodities Limited)

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