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| • EXCH RATES |
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Baht/$ 33.47/52
Bid/Ask
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GOLD |
15,200
- 50
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West Texas Intermediate (WTI) prices collapsed more than $18 a barrel after hitting an intraday high of $147.27 a barrel on July 11, closing last week at $128.88 amid concerns over US economic health, returning supply from Brazil and Nigeria, and easing tensions over Iran's nuclear programme.
Last week, the market focused on the US financial sector after the US Treasury and the Federal Reserve announced an emergency plan to aid the mortgage companies Fannie Mae and Freddie Mac. However, investors questioned whether the plan would be enough to restore the financial sector. Prolonged problems in the financial system can threaten the economy and dampen oil demand from the top energy consumer.
In addition, a five-day strike in Brazil that started last Monday had little impact on oil output as the country was able to bring production back to normal early on Tuesday.
In Nigeria, major producers lifted the force majeure and restored their operations to full capacity after cutting output by 500,000 barrels per day due to rebel attacks.
US inventory data also weighed down on crude prices as stocks surprisingly increased by three million barrels against the expected decline of two million, and US natural gas supplies rose more than expected. Further downward pressure came from the easing of tensions between Iran and the West, with US plans to send diplomats to Geneva to join nuclear talks with Iran for the first time over the weekend. Also, Iran's foreign minister said on Friday that he did not expect his country to come under attack over its nuclear programme.
Rising concerns over weakening US demand due to high oil prices and the poor economy may weigh on crude prices in the short term. The dollar is anticipated to strengthen on expectations of interest rate increases to curb inflation. These factors will encourage investors to sell commodities and move funds to other markets. Nevertheless, uncertainty about political issues such as Iran remain upside risks to a surge in crude prices. Hurricanes developing in the Atlantic Ocean could further threaten oil and gas production in the Gulf of Mexico.
Gasoline prices in Singapore continued to slump last week, with crack spreads - the difference between gasoline and crude prices - falling to the lowest levels since 2004. The market remained bearish on weaker gasoline consumption in the US and Europe. Lack of incremental demand from major Asian gasoline importers, Indonesia and Vietnam, dampened prices. Regional supply continued to increase after North Asian refineries returned from scheduled maintenance.
High freight rates and slower US demand have also prevented surplus gasoline barrels from being moved to the US West Coast and the Middle East. We expect the gasoline market to stay weak during the summer driving season in the US following these trends.
Asian diesel prices weakened in line with falling crude values. Rising regional supplies also weighed on market sentiment.
In addition to increased exports from South Korean refineries, the start of new 160,000-bpd refinery in China early this month boosted diesel supplies further. Sellers in North Asia have struggled to find outlets to export surplus diesel since arbitrage opportunities to Europe have closed and demand from Indonesia and Australia has been in decline.
The near-term outlook for diesel demand remains weak. The market is waiting to see whether China can sustain its buying in August if its government extends the tax rebate on diesel and gasoline imports into the third quarter.
Prepared by Thai Oil Plc
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