Commodity prices – especially oil – remain the big driver of activity and sentiment in financial markets, and a state of glum acceptance that lower oil prices are here to stay for quite a while, is now taking hold among investors.
So the blind selling here we saw in stocks such as Santos should ease, but we should also watch for the start of asset write downs and other bad news to start appearing shortly – quite possibly in the US.
US crude-oil prices fell hard again Friday night our time, with West Texas Intermediate style crude settling at its lowest level in more than five years, while in Europe, Brent oil also fell.
A stronger US dollar (which saw the Aussie currency dip to within sight of 83 USc) after the very strong US jobs report for November helped drive oil (and other commodities, such as gold) lower.
The 321,000 new jobs last month, plus a further 44,000 added to previous months, means the US jobs market is heading for its biggest year since 1999, and this is raising pressure for the US Fed to clarify its interest rate policy.
But also helping was news that Saudi Arabia is now offering even bigger discounts on exports to some of its customers for January.
On the New York Mercantile Exchange, West Texas crude futures for January delivery fell 97c or 1.5%, to settle at $US65.84 a barrel, marking the lowest settlement for a front-month contract since July 29, 2009, according to Bloomberg.
They fell further in after hours trading to end the week on $US65.63, down 1.7%
Oil had been looking at a rare positive week until the sell off on Friday night, our time.
In London January Brent crude fell 0.8%, to $US69.07 a barrel, down 1.5% for the week and the lowest settlement since October 7, 2009.
Oil briefly started regaining ground after the stronger-than-expected US jobs report for November, but then it lost ground thanks to the stronger US dollar (because investors think the jobs report will see US rates rising sooner than later).
Crude also was pressured by the new round of contract discounts from Saudi Arabia for US and Asian buyers.
On Thursday, the Saudi Arabian Oil Co., also known as Saudi Aramco, cut its official selling prices for all oil grades bound for Asia in January by between $US1.50 and $US1.90 a barrel, compared with December.
It also cut prices for all crude grades to the US by between 10c and 90c a barrel.
This is further evidence of the determination of the Saudis to keep its share of the global oil market, while pressuring the US shale oil sector as hard as it can.
The discounts will push the price of Saudi crude, especially that on offer to Asian buyers, to a 14 year low.
Not only is that a sign of its determination to attack the US shale sector, but it also puts pressure on some of its opponents in Opec, such as Iran, Venezuela, Nigeria and and Iraq.
Meanwhile, Comex gold prices fell on Friday night thanks to the jobs report pushing the US dollar higher. Despite a fall on Friday, gold still managed to end the week 1.3% higher.
Comex gold for February delivery fell $US17.30, or 1.4%, to settle at $US1,190.40 an ounce.
It ended at $US1,191.80 in after hours trading, down 1.3% on the day.
Comex March silver lost 32 USc, or 1.9%, to $US16.26 an ounce.
The solid US jobs report will add extra pressure on commodity prices in the coming week, along with data from China, starting with the November trade report.
Copper will be particularly impacted by the level of Chinese buying, along with oil and iron ore.
