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OIL & GOLD, Next Move

July 28, 2015

BRENT $ 52.70
WTI/Light Arabian $ 47

Current fall in oil prices is in line of my forecast. In my earlier post dated July 22 2015, I have given enough reasons that why Chinese economy is at risk. Latest report of indefinite delay in final signing of Russian/Chinese gas supply through Gazprom’s Siberian pipeline shows further exhaustion of Chinese economy.

The major worrying factor is the imbalance caused by supply, as the pressure on oil tap flow has increased, whereas demand for global oil is not very encouraging.

Right now, physiologically Iran nuclear deal is surely the game changers for the oil market. But market at current levels should be slight cautious and should not overreact. Except for increased supply caused by US shale production and minor over production by OPEC and Russia, noting exceptional has happened as yet.

Strategic buyer must be taking advantage of price slump and fill their taps, as one small positive factor could ignite the fire and oil prices could make sharp recovery. This could happen any time soon or may be in next 2-weeks time. I would like to stick to my earlier projection, as profit taking and bottom hunting is the preferred strategy.

Hence, as of now, I do not see fall below $ 37 support, instead oil may recover or else break of support level could risk more blood bath.

 

GOLD @ $ 1193

Traders long in gold must be wondering that what caused this gold carnage. It is wrong impression that gold is being slaughtered.

I believe that Hedge Funds are more responsible for causing nervousness and so called plunge in the market.

All the indicators were crystal clear about gold’s coming move. Withdrawal of Quantitative Easing, US economic recovery, sharp drop in Global Central Bank buying, EUROPEAN Currency recovering from Euro-zone bad patch and declining trend in Chinese GDP are good enough reasons to support current Bear trend in the metal market.

The real truth is that if we combine Iran’s nuclear deal with the above factors, then gold has no reason to gain further strength.

Since the current fall is sharp and there seems no hope for recovery. Tomorrow’s FOMC and Thursday’s poor Q2 US GDP data could be the only hope for gold’s minor recovery or else deeper fall will not be unavoidable.

In Medium Term, Gold may struggle to penetrate beyond $ 1150-80 zones and unless clears $ 1200, see risk for deeper fall. I am looking for a break of $ 1040-60 zones for $ 975.

 

PREVIOUS POST

                                             Oil trend after Iran N-deal

https://www.linkedin.com/pulse/oil-trend-after-iran-n-deal-asad-rizvi?trk=prof-post

July 22, 2015
Iranians have a profound reason to celebrate the landmark nuclear deal as it is expected to provide much-needed economic relief to them in the shape of currency stability, a rise in oil income and more importantly connectivity with the global banking system. The Iranian Oil Minister sounded confident during an OPEC meeting in the 1st week of June. On July 14 he said that his country could increase 500.000 barrels per day and add another 500.000 in the next 6 months to its production.

According to a World Bank oil consultant, Iran oilfields require huge repair, as they are old. Hence, to attain its desired production level, it may take another 2 years to repair the damaged reservoirs in oilfields. More importantly, the optimism is understandable, but there are few barriers that need to be crossed, as both houses of the US Congress are dominated by the Republicans, which is the opposition party and has strong reservations about the nuclear deal. This exercise may take another 60-65 days. President Obama has already hinted that he will use his veto if things do not move in the direction that he had delineated. All this may take another 4-6 months before Iran is allowed to flood oil the market.

Globally oil supply is already in surplus, exceeding demand. Therefore, Iran’s future oil sale prospect has one big risk that should always be threatening for the refineries to buy oil in future dates. The Obama administration is very clear that it will not compromise on compliance issue. This means, when Iran attains it full production level, oil glut will be unavoidable unless excess production is cut down.

Therefore, right now or for few more months, global understanding to lift Iranian sanctions will have no impact on global growth, which will continue to struggle. China is still a suspect no matter wherever its stock market goes up or down. The truth is that the Bank of China considered credit expansion beyond a 75 percent cap, but it is not workable, as nearly 20 pct of its homes are empty, hence its steel and cement industry will not be able to work at maximum capacity.

Similarly, soon after a global meltdown nearly half a decade ago it poured billions of USD to construct roads and dams, which are under-utilized. Its exports are sufficient to meet global demand that cannot be increased any further unless global economy bounces back. There are hardly new big avenues for a turnaround. Talk about Chinese reforms makes little sense, as there is hardly any area left that can deliver sizable growth. China’s Banking is one area that needs to be rectified, but reforms here could lead to plunge. The challenge is to attain real economic growth.

Nor is Greece solution growth oriented. One should not ignore the fact that sanctions on Russia too are not helping the cause. The IMF has already lowered its initially inflated global growth projection. If we analyse some of IMF’s past report, it has a clear strategy to support and arrest the possibility of a bigger fall by providing inflated growth target, which on most occasions is revised downward. Was the IMF not aware of Greece problem in the making or Chinese economy getting exhausted?

While oil production is still on the up, surplus oil and weak demand is the worst combination for oil price stability. It’s the domination factor to capture maximum global oil business and retain customers, which is keeping oil prices under pressure. USA’s domestic production has comfortably exceeded its oil import. Hence, unless OPEC members are willing to halt excess oil supply or Iran violates its nuclear deal, oil prices will remain soft, choppy and volatile.

Brent Oil @ & 57 = I suspect that Brent Oil will find temporary support around $ 50.50-52.80 levels for another test of $ 60-62 zones. Only a break of support level risks for a test of $ 43-45 zones.

WTI/Light Arabian Oil @ & 50.50 = It could potentially lose another $ 5-8 before correction occurs for up-side test of $ 55-58 zones. On the downside, the next major support level is $ 37, which is unlikely to be tested in near term before another drop occurs to test the Major support level in next 6-months time.

 

Bingo GOLD @ $ 1132

https://www.linkedin.com/pulse/bingo-gold-1132-asad-rizvi?trk=prof-post

Bingo GOLD @ $ 1132 =

JULY 17 – In my last note on May 16, when Gold was trading @ $ 1223.50, I cautioned through my column that initially gold could still make some more up-moves and break of $ 1245-50 is required for test a of $ 1280-90 zones, which looks unlikely to happen, as sellers may emerge on rise and gold needs to penetrate below $ 1175-80 levels for $ 1120-40 zones.

The call for gold down move have been spot on the target, as gold failed to move beyond $ 1233 perfectly hitting my downside target after loosing $ 100 of its value against US Dollar.

The problem in recent times is that gold, no more enjoying safe haven status, as is a costly metal to hold that offers no return to holders.

Easing Geo-Political condition with the lifting of Iran sanctions & Greece agreeing to lenders terms and condition does not help Gold. Chinese economic unrest further dents gold buyers confidence, as demand for US Dollar is constantly on the rise.

Fear of US interest rate hike this year is putting further dent on gold, as lack of Central Bank buying for reserves purpose and US Quantitative Easing reversal is the added Bearish factor.

My 2015 Outlook on gold that appeared in “Business Recorder” on January 2 2015

http://www.brecorder.com/pages/article/1139021/2015-01-02/outlook-2015.html

remains unchanged, as it is likely to remain under pressure and my target of hitting $ 924-50 zones this year is intact.However, $ 1110-20 is the level that could hold for now for a test of $ 1180 before the fall occurs.

Ideally profit should be taken at suggested levels and long gold is preferred around $ 1070-90 if seen, unless $ 1050 breaks, which may not happen in near term.

July 20 – Gold $ $ 1117 = Hope profit is taken and went long at suggested levels around $ 1070-90. No Change in View, profit can be taken around $ 1117-27, as another dip is in making Cheers to all……….

https://www.linkedin.com/pulse/bingo-gold-1132-asad-rizvi?trk=prof-post

 

 

 

 

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