Crude Prices Continue To Decline As Markets Reconsider Outlook For Earnings

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Tuesday, 07 April 2009 20:44:27 GMT
Written by Stefan Tifigiu, CFDTrading Research

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Crude prices fell for another day as unease over financials weighed on world indexes. Prices have been influenced by overall market risk trends for the past week and valuations seem to have become disconnected with traditional fundamental influences.

Commodities - Energy

Crude Continues To Drop As Markets Decline

Crude Oil (WTI) $49.050 -$2.000 -3.92%
Crude prices fell for another day as unease over financials weighed on world indexes. Prices have been influenced by overall market risk trends for the past week and valuations seem to have become disconnected with traditional fundamental influences. Much of the market’s optimism in the past week was led by positive impact that loosened accounting rules coupled with expectations for a better performing quarter would have on the broader financial sector. That same prospect now is the source of unease in the markets as financial valuations could swing in either direction. Crude prices had jumped up on expectations of a coming recovery. However, a significant turnaround for the economy will be very difficult until financial institutions will be free to lend again and spur up growth. Since many institutions continue to hold “toxic” assets on their balance sheets, the bad-bank plan may be key to triggering the recovery. The plan however remains unfinished in many key areas. Such issues as asset-pricing and lack of assurance of no retro-active government involvement threaten the plan’s effectiveness. Until those issues are addressed, the plan will not work and the economy will continue to remain credit-starved and stagnant. In the meantime, market focus will return to large stockpiles of crude and economic releases that suggest there will be further weakening of global crude demand. If tomorrow’s DOE figures continue to show large supplies, crude prices will decline further.

4-07-09DOE.gif


Commodities - Metals

Gold And Silver Regain As Unease Over Financials Grows

Gold $881.980 +$13.075 +1.50%
Gold prices regained some of the last few session’s losses as investors grew uneasy over soon-to-be released financial earnings reports. The sale of gold by the IMF, which led to weakness in prices yesterday, also began to let off pressure as the sale will take several years to complete and will likely have minimal market impact. Nevertheless, despite today’s gains and increased unease over the markets (conditions that would normally benefit safe-havens), it is unlikely gold will return to strength soon. Risk sentiment has dominated pricing and will likely continue to do so in the near-term. In the meantime, fundamentals that argue for price strength will raise volatility but with a stronger US Dollar as an attractive alternative, gold prices will likely continue to decline in the short to medium-term.

Silver $12.275 +$0.1350 +1.11%
Silver will continue to track any movements with Gold as the two historically move together. Given the return to risk-appetite, prices will likely remain weak for the near to medium-term, however fundamentally, the metals are in position to gain.


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