Japan's GDP Sinks Pulls Down Crude Oil

By FX Empire Analyst - Barry Norman
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Equities are weak after fall in GDP figure from Japan. This morning reports showed that the Japanese GDP grew at a much slower pace as rebuilding activities post the massive earthquake continued to fade. Lackluster GDP numbers are forcing a drawback for riskier assets including commodities such as oil and gas and may continue to support downside.

Data showed that Japan's GDP printed well below market forecast. The quarter fell from 1.3% in the prior to 0.2%, and expectations were 0.6%.

The safe haven US Dollar Index has also gained against a basket of currencies, may continue to limit other currency buying of US denominated commodities today

The Chinese government has hinted of new controls to property market and may continue to weaken energy products due to lower demand as the Chinese property market constitutes the major user of energy products.

The German wholesale price index is also likely to remain at a mixed or weak and may continue to pressurize the euro extending weakness to metals.

While, the US markets are likely to remain subdued due to increased pessimism and lack of economic releases in today’s session.

Crude oil futures prices are trading at $93.6/bbl, up by 0.70 percent from last Friday’s closing

Hopefully US economic releases in the current week are likely to paint an improving economy picture, creating speculation of rising demand. Oil futures prices might have taken a positive glance. News from Strait of Hormuz reported that there was a collision between guided missile destroyer and oil tanker yesterday, though there is little more details to go on at this time. Iraq is planning to increase its output to 3.4 million barrels by year’s end, a 20 years high level. It was reported that this past month, that Iraq surpassed Iran in production levels. On one side, concern of supply shortage is supporting oil and on the other side, it is news on higher production level which may limit the gains.

As expected, Japan’s GDP shrunk in the last quarter to negative levels reported today morning. This may depreciate the domestic currency to become weaken further against dollar. Thus, appreciation of US dollar may weigh on oil prices also.

The overall weight on energy will be the revision on Friday of demand for crude oil by the EIA and the drop in global growth as reported by the IMF and the OECD.

The National Hurricane Center, reported that there is no advisory issued on tropical cyclone in gulf region.

Natural Gas prices are holding below $2.780/MMBTU in international market with loss of more than 0.70 percent from last Friday’s closing. Residential consumption by using natural gas has been declined by more than 1.5 percent in the last week. Total gas demand increased by only 0.75 percent, lower than last year at the same time above 3 percent. Pen Energy Corporation posted 65% fall in quarterly profit. This may create concern of lower production by upstream companies.

 In addition to this, upstream industries are planning to cut down production due to plunge in profit due to lower gas prices. Rig counts for natural gas have fallen by more than 3 numbers in the last week due to declining production. 

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