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Weak Dollar has Gold at Record High, Oil Market sees Raft of Fundamental Data

|Includes:CORN, NIB, NIBC, OIL, OILC, ETFS Physical Palladium Shares ETF (PALL), PGM, PPLT, SGOL

The weak dollar is once again leading direction across the commodity spectrum in today’s session, particularly on the precious metals complex, where gold is seeing a new record high above $1,386/oz, and silver is touching the highest levels since 1980 at almost $25/oz. That said, much of the fundamental side of things today is seen in the crude oil market, with a raft of monthly and weekly reports, and with OPEC’s policy meeting in Vienna taking place today.

The US Department of Energy (DoE) released their monthly oil report yesterday, which as expected showed slightly better numbers than the previous day’s OPEC monthly oil outlook. The report revised 2010 crude demand 0.11 million barrels per day (bpd) to 86.06m/bpd, and left expected growth for 2011 unchanged at 1.38m/bpd. The report showed non-OPEC oil production rose by 0.34m/bpd in September to average 51.58m/bpd and revised non-OPEC 2010 production higher by 0.19m/bpd to 51.39m/bpd. OPEC production fell by 0.14m/bpd in September to average 29.41m/bpd, and the report estimated the cartel’s spare capacity to be 5.19m/bpd. The report also revised higher the 2010 and 2011 WTI oil price forecasts, from $77/bbl to $77.97/bbl in 2010, and from $82/bbl to $83/bbl for 2011.

Yesterday’s weekly oil inventory data from the American Petroleum Institute (NYSEMKT:API) has been helping to support crude oil prices today, after it showed a surprise 4m/bls decline in crude inventories for the week. This came despite crude imports edging 0.1m/bls higher in the week, and refinery utilisation falling by 200 basis points (bps) to 81.6%. The move in products was comparatively more subdued, with a 1.9m/bls reduction in gasoline stocks and a 0.2m.bls fall in middle distillates. As always, this report is being assimilated as a precursor to the more definitive, and accurate, US DoE data due for release a day late today by the Energy Information Administration (NYSEMKT:EIA) because of the Columbus Day holiday.

Unlike the API data, which is collected from a select number market participants by what is essential a private company, the EIA has the full backing and might of the US government when collecting its weekly data, and so is general able to gauge a much more accurate picture of the weekly levels, and collect information from far more players than the API. This is why the EIA report is seen as the industry benchmark, and often shows numbers that vary quite wildly from the previous day’s API stats. Given this API data and speaking to a number of market players, average expectations are for the EIA report to show a build of around 0.5m/bls, although there is potential for this to be lower as with the API data, as a damaged electrical tower in the Houston ship channel prevented two way traffic from Sunday to Wednesday last week. General consensus is also suggesting that gasoline stocks will show a fall of around 1.7m/bls, with distillates expected to fall 1.2m/bls.

Today’s OPEC meeting is unlikely to come up with anything unexpected, with a number of officials already stating their contentment with current oil prices and their expectations that quotas will remain unchanged. One could also argue that assuming the cartel didn’t make a massive and unexpected policy change, their influence on oil prices at the moment is relatively weak, given the main driver behind crude prices for the last month or so has been definitively moves in the dollar, with ongoing talk of QE2, and a general correlation trade with the equity markets.

As highlighted, the precious metals complex has seen another strong day of rallying today, pushed as the euro-dollar cross topped out at the highest level since January, around 1.41. Although this brought the yellow metal to a new record high, spot silver was actually outperforming the entire complex as it came just under $25/oz; the highest level since March 1980. Movers from the fund arena, unlike for gold, have helped support silver in recent days, with the largest silver ETF, iShares Silver Trust, yesterday reporting an increase of 40 tonnes to its holdings, an increase of almost 800 tonnes in the last four weeks or so. This comes in contrast to the world’s largest gold ETF, SPDR Gold Shares, which yesterday reported a further net liquidation of 2 tonnes, bringing the total liquidation for the last few weeks to almost 21 tonnes.

Base metals are generally following their more precious counterparts today, as the weak dollar helps push prices across the board. Tin is also expected to see some squeeze on the supply side, after PT Timah, Indonesia’s largest tin producer (Indonesia itself the world’s second largest tin producer, and worlds largest tin exporter), saying it will not be able to meet its 2010 production target of 50,000 tonnes, instead anticipating this years output will be nearer to 40,000 tonnes. The company has also temporarily stopped its tin sales on the spot market, and is in the process of negotiating new supply contracts with its long-term customers.

In the agriculturals markets, the International Cocoa Organisation (OTCPK:ICCO) have said they expect a market oversupply of 100,000 tonnes in the crop year 2010/2011, slightly more than the previous estimate of 70,000 tonnes. This is mainly due to the good rainfall in the West African producing countries in recent months, who account for around 65% of global cocoa production. With this, the ICCO are now expecting a global rise in supply of around 5.6% to 3.8 million tonnes. With this, Cocoa is one of the few commodities to be seeing selling pressure in today’s market, with the front December 2010 Nymex Cocoa future off around $16/tn.

Disclosure: no positions