Crude Oil to Fall as Import Prices Surge, Bolstering Dour IMF Growth Outlook

Crude oil is set to extend losses as a rise in import prices reinforces an IMF report saying energy price gains will hurt overall growth. Gold and silver are likely to follow.

Commodities – Energy

Oil Falls on IMF Growth Outlook, Further Losses Likely

WTI Crude Oil (NY Close): $109.92 // -2.87 // -2.54%

Prices put in a Bearish Engulfing candlestick pattern below the $114/barrel figure, with prices falling to support at the bottom of a rising channel established from mid-March. A break below this boundary exposes the 38.2% Fibonacci retracement of the 3/16-4/11 advance at $106.85.Near-term resistance lines up at $113.44.

Crude’s standing correlation with the MSCI World Stock Index – a gauge of broad-based sentiment trends – was reinforced today as the spectrum of risky assets declined after the International Monetary Fund cut its growth forecasts for the US and Japan, saying high oil prices pose a risk to global recovery. Geopolitical factors failed to undermine selling pressure after Libyan rebels refused a cease-fire brokered by the African Union, saying any deal that leaves Muammar Qaddafi in power is inherently unacceptable.

Looking ahead, the Department of Energy short-term crude outlook gauge as well as preliminary API weekly inventory figures headline the calendar. The US Import Price Index may also command attention. Expectations call for the annual growth rate to rise to 8.6 percent March – the highest in eleven months – with much of the increase likely to be attributed to higher energy prices. Petroleum costs have been responsible for over half of the rise in import costs over the past two months and over 40 percent since October, with more of the same reinforcing the IMF’s argument and amounting to further downward pressure on crude prices.

Commodities – Metals

Gold to Decline as Risk Appetite, Inflation Outlook Falter

Spot Gold (NY Close): $1463.15 // -11.78 // -0.80%

Prices put in a bearish Dark Cloud Cover candlestick below resistance at the midline of a rising channel set from late January. A move lower from here to take out the channel bottom sees initial support at $1439.89, the 38.2% Fibonacci retracement of the 3/15-4/11 advance. Near-term resistance lines up at $1476.45.

As we have mentioned previously, the quarterly chart (not shown) has completed an acutely bearish Hanging Man candlestick. Similar setups in the past (the first and second quarters of 2004 and 2008 respectively) produced declines of 7.5 and 5.8 percent over the subsequent three months.

Short-term correlation studies reveal comparably strong correlations with the MSCI World Stock Index, a proxy for global risk sentiment trends, and the 2-year Treasury breakeven rate, a gauge of near-term inflation expectations. Both leading metrics posted parallel losses today, bringing the yellow metal along for the ride, after the IMF lowered its growth outlook for the US and Japan while the NY Fed President Bill Dudley and Fed Vice-Chair Janet Yellen came out on the dovish side of spectrum in scheduled remarks, as expected. Tomorrow’s US import price index figures are likely to reinforce the IMF argument (see above), opening the door for further losses.

Spot Silver (NY Close): $40.25 // -0.68 // -1.66%

Prices put in a bearish Harami candlestick pattern below resistance at the top of a rising channel set from late January. Initial support lines up at $39.98 – the 23.6% Fibonacci retracement of the 3/17-4/11 advance – with a break below that exposing the 38.2% level at $38.77. The channel top, now at $41.70, remains as near-term resistance.

The correlation between gold and silver remains formidable, suggesting the two metals will continue to move along the same trajectory and hinting that silver is likewise vulnerable to further losses amid fading risk appetite and unwinding inflation expectations.

(Source: http://finance.yahoo.com/news/Crude-Oil-to-Fall-as-Import-fxcm-1589079793.html?x=0&.v=1)