OIL: Bias Remains for Higher Prices, Eyes Turn Again to Iran

Sell 10,000 of TYH6 traded at 112-24, post-time 08:13:40 AEST (DV01 $671,132). The contract closed at 112-23, +0-04+ from closing levels.

After major gains last week, gold and silver fell sharply on Monday driven by profit taking into year end as the metals flashed overbought with the move amplified by light holiday-related volumes, which could drive further volatility this week. The increase in CME margin requirements from Monday was also a trigger. The moderation of geopolitical tensions from progress on Ukraine peace talks likely also contributed. 

• Gold has lost last week’s gains falling 4.4% to $4332.35/oz off the intraday low of $4307.67. Bullion remains in a bullish structure and Monday’s decline is seen as corrective. It is up 2.2% this month.
• Silver has given up most of Friday’s rally but not all. It is down 9.0% to $72.14 after reaching $70.543, holding above support at $67.239, 22 December low. It made a new record high in the APAC session rising to $84.008. It is still 27.7% higher in December as the physical market remains tight.
• The CME decision to increase the cash held to back precious metals futures positions was a “normal review of market volatility”, according to DJ. Positions were liquidated where the cash wasn’t available to meet the new requirements.
• The US dollar was slightly higher while the 2-year yield was lower. Equities were mixed with the S&P down 0.4% but Euro stoxx up 0.1% and FTSE flat. Copper also corrected falling 4.6% while oil rose with Brent +1.7% to $61.70/bbl. 

• US EIA: CRUDE OIL STOCKS EX SPR +0.4M TO 424.8M DEC 19 WK
• US EIA: DISTILLATE STOCKS +0.2M TO 118.7M IN DEC 19 WK
• US EIA: GASOLINE STOCKS +2.86M TO 228.5M IN DEC 19 WK
• US EIA: CUSHING STOCKS +0.71M TO 21.6M BARRELS IN DEC 19 WK
• US EIA: SPR +0.8M TO 413.0M BARRELS IN DEC 19 WK
• US EIA: REFINERY UTILIZATION WEEK CHANGE -0.2% TO 94.6% IN DEC 19 WK