Oil Falls On Speculation OPEC Will Not Cut Production
U.S. 10-year Treasury notes rose slightly today, on
expectations that the Fed will continue to hold interest rates at 5.25% during
next week’s Fed meeting. Bond prices shot up in June, when the Fed announced
the initial hold, stemming from a slowing U.S. economy. Bonds began to fall
three weeks ago, when the Fed minutes showed that inflation was still for the
board. However, with more and more economic reports showing little inflation
and slowing industrial production, investors are betting that the Fed will
continue to hold into 2007. Prices have been treading water since falling
dramatically 3 weeks ago, as investors scrap for an edge before the Fed meeting
next week. Interest futures show that there is practically no chance that the
Fed will cut rates before the year is out.
The dollar rose against the yen and the euro today, as
investors bet that the Fed would not lower rates during their meeting next
week. A widespread sentiment among investors is that the Fed is still worried
about inflation, and that the economy is not slowing as quickly as what was once
thought. The dollar gained the most in two weeks against the yen in particular,
on speculation that the Fed will hold and the economy will continue to grow into
the year. The euro also gained moderately against the yen today.
Crude oil futures fell over 2% to close at $56.70 today, on
speculation that OPEC will not follow through on its promised output cuts. OPEC
has recently publicly stated that it plans to cut worldwide oil production by
about 4%, around 1 million barrels a day, to stem losses coming from the 20%
decline in oil prices since reaching record highs in July. Saudi Arabia
announced plans to cut back on production yesterday, but today’s price action
did not reflect that traders took the threat seriously. Natural gas rose 1.7%
on fears that this winter will be especially harsh across the eastern U.S. Gas
is used to heat homes, so price usually rises on harsh weather forecasts.
Gold futures fell over 1% to close at $593.00 an ounce today,
as energy costs went down and bond prices continued to hold. Gold has been
trading in-step with oil through the summer, as rising energy costs prompt
buying in safe-haven futures commodity contracts. Copper was basically
unchanged today, but investors fear that price will drop next week if China
announces disappointing growth numbers. Copper is commonly used in industrial
and home building.
Softs traded mixed for the day. Cocoa fell 0.6%, coffee rose
0.2%, orange juice rose 0.1% and sugar rose 1%.
Grains mostly fell today. Corn was down 1%, wheat fell 1.5%,
soy fell 0.25% and oats fell 2%.
Meats traded mixed, with cattle down 0.3% and porkbellies up
John Patrick Lee