Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The market continued its recent rebound as the August crude ended with a gain of 3.35 to settle at 107.62, while gasoline added 12 cents and heating oil was the laggard of the complex with a gain of just under 3 cents.
The early momentum stemmed from a recovery in equity markets, as indexes were up nearly 2 ½ percent, which spilled over to the petroleum complex. Continued political unrest in Libya has clouded their current output claims and added underlying support along with the approach of the OPEC+ meeting next Thursday where the cartel is expected to stick to the plan of gradual production increases.
Despite the recovery, concern remains of a recession in the US which could have a major effect on demand. The Federal Reserve remains steadfast in its commitment to bring inflation under control, and last week’s .75 percent increase in rates is not far from traders’ minds.
With the EIA weekly storage report delayed due to technical problems, the only data the market had to go on this week was the API release from Wednesday afternoon. It showed crude stocks gaining 5.6 mb, gasoline up 1.2, and distillates lower by 1.7 mb. The report also indicated an uptick in production to 12 mb/d.
Upside follow-through should find initial resistance near 111.00 while trendline support lies below the market near 102.00.
Natural Gas
Prices contracted further following the weekly storage report, with the 6.50 support and 100 day moving average just below there taken out convincingly as the August contract settled at 6.283 yesterday. Today’s action saw a test down toward the 6.00 area before ending the week at 6.281. The 74 bcf build was above estimates at 65 and seemed to focus trade on the additional US supply that will result from the Freeport shutdown. Recent weather forecasts have signaled some weakening in CDD expectations, which added to the negative bias as concerns of a continuation of the June heat eased. The fall through the 100-day moving average is a near term negative with initial support at 6.00 and below there in the 5.84 area. A recovery will encounter resistance near 6.50.
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