Archive for November, 2010

OIL FUTURES: Crude Falls On Worries Ireland Woes May Spread

Oil futures declined Monday on worries that other euro zone countries could be next in line after Ireland agreed to a bailout.

Light, sweet crude for January delivery was down 81 cents, or 1%, at $81.17 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange fell 80 cents, or 1%, at $83.54 a barrel.

Ireland over the weekend agreed to accept an aid package from the European Union and the International Monetary Fund, bringing an end to unease over whether the debt-ridden country would accept the assistance. Markets were initially cheered by the decision but have reversed course on fears that other troubled euro zone economies might be next in line.

“The real thing that’s being talked about is…are all these other countries going to be in trouble? The market is losing a little bit of strength on that,” said Tony Rosado, a broker with GA Global Markets.

In addition, the details of Ireland’s rescue remain up in the air–an uncertainty likely weighing on markets, Rosado said. The EU plans to conclude technical talks with Ireland on the size of its rescue package this month, the EU’s Commissioner for Economic Affairs Olli Rehn said Monday.

The euro’s decline against the dollar has accelerated throughout the trading day after a party in Ireland’s coalition government called for elections. The euro recently fell to $1.3598 from $1.3673 earlier. The ICE Dollar Index, which tracks the greenback against a basket of trade-weighted currencies, was higher.

A stronger dollar typically weighs on oil prices as the dollar-denominated commodity becomes more expensive in other currencies.

“We’re still concerned about Portugal, we’re still concerned about Spain, we’re still concerned about Italy,” said Phil Flynn, energy analyst at PFGBest. “The bailout on the one hand was a positive thing but…I think the markets are still a little bit nervous.”

Other markets fell on Monday, with most commodities in negative territory and the Dow Jones Industrial Index off 92 points, or 0.8%, to 11110 in recent trading.

Oil market participants also remained concerned about the prospect of additional monetary tightening in China after the country’s central bank last week raised lenders’ reserve requirement ratio. Worries remain that a more drastic move, such as an interest-rate hike, could follow.

Traders worry that Chinese moves to tighten monetary policy, aimed at reining in inflation, could slow growth in the world’s second-largest crude oil market.

“The continuation of an exceptionally strong Chinese economic growth path is not necessarily a foregone conclusion,” said Jim Ritterbusch, head of Ritterbusch & Associates.

Front-month December reformulated gasoline blendstock, or RBOB, recently fell 5.29 cents, or 2.4%, at $2.1431 a gallon. December heating oil traded down 1.87 cents, or 0.8%, at $2.2557 a gallon.

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Canada’s Trade Deficit Unexpectedly Widens

As import prices rose amid declining exports, Canada’s trade deficit widened to the second-highest level on record in September.

The trade deficit was C$2.49 billion (US$2.47 billion), up from C$1.49 billion in August, revised from the originally estimated C$1.35 billion, Statistics Canada said Wednesday. The trade deficit in July was a record-high C$2.51 billion.

The market had expected the deficit to grow to C$1.6 billion in September.

The overall value of exports fell 1.7% to C$33.07 billion from C$33.65 billion in August, as prices rose 0.5% and volumes dropped 2.2%, StatsCan said.

At the same time, the value of imports rose 1.2% to C$35.55 billion, the highest level since November 2008, with prices rising 1.1%.

One area of strength in exports was machinery and equipment, which continues to slowly recover from the “thrashing” it took during the past two years, said economists at BMO Capital Markets. “On the import side, there were big gains in industrial goods (precious metals were up strongly), and machinery and equipment,” they said.

The trade deficit for all of the quarter surged to a record C$6.5 billion, nearly triple the second quarter’s deficit, BMO economists said. That will widen Canada’s current account deficit even further.

“Trade continues to be the Achilles’ heel of the Canadian economy, perhaps carving as much as 3 percentage points from GDP growth in Q3, after a similar subtraction in the prior quarter,” BMO said.

RBC Economics said the 1.7% drop in Canadian exports in September was much larger than expected and almost fully reversed a downwardly revised 2% gain in August.

The data point to the volume of exports dropping 4.8% in the third quarter, the first decline in five quarters, and the net export balance will be a drag on overall GDP growth again in the quarter, RBC said. “This hit to growth is larger than what we had been assuming and suggests some downside risk to our current Q3 growth rate of 1.8%,” it said.

Exports of automotive products fell 6.6% to C$4.77 billion, the fourth consecutive decline, led by a 10.9% decline in passenger car exports.

Other consumer goods exports fell 15.9% to C$1.36 billion, following a 27.3% gain in August, on fewer exports of medicinal and pharmaceutical products.

Exports of industrial goods and materials fell 2.3% to C$7.82 billion on lower volumes, with gains in nickel and alloy exports offset by declines in precious metals and copper ores.

Meanwhile, imports of industrial goods and materials rose 5.6% to C$7.56 billion, led by metals and metal ores, including record-high imports of precious metals, up 38.6% to C$1.0 billion.

Machinery and equipment imports rose 3.2% to C$10.21 billion led by aircraft, engines and parts, while automotive parts imports fell 4.8% to C$5.50 billion.

Canada’s trade surplus with the U.S., the country’s largest trading partner, narrowed to C$1.6 billion from C$2.9 billion in August, on lower exports of passenger cars.

Exports to countries other than the U.S. rose 3.6% as imports rose 0.5%, reducing the nation’s trade deficit outside the U.S. to C$4.1 billion from C$4.3 billion.

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