Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Strength was seen early in the session as the October crude tested above the 9-day moving average, but sentiment reversed as the day went on and prices settled lower by 54 cents at 80.12. Gasoline and heating oil also experienced weakness, ending more than 4 ½ and 3 ½ cents lower respectively.
Overnight buying was tied to a weaker dollar and strength to equities, which both ran out of momentum as morning trade got underway. News that China had raised short term interest rates was initially supportive, but digestion of the fact that the move was less than expected and limited to 1-year rates reignited questions about the Chinese government’s willingness to take aggressive action to support their economy. Overhanging concern continues to emanate from growing consensus of a “higher for longer” direction for US interest rates which added to the negative tone.
Today’s reversal action on the chart points to a near-term top being in, with a test of last week’s lows at 78.60 the next target. A push below there would find support at 77.80 which marks a 38 percent retracement of the rally since late June. A turn back higher will find minor resistance 80.97, with a close above 81.21 necessary to signal more substantial upside potential.
Estimates for Wednesday’s storage report point to crude oil being drawn down by 2.9 mb, gasoline to have decreased 1.1 while distillate stocks are expected to gain .4 mb. Refinery utilization is forecast to have gained .5 to 95.2 percent.
Natural Gas
The market found some buying interest today as the October contract ended with a gain of 5.2 cents at 2.743. Extreme heat currently being experienced in the South Central and Midwest regions was the driver of the move as ERCOT (the Electric Reliability Council of Texas) saw record demand over the weekend and likely again today. Despite the strength prices stayed well within our recent range with few fundamental changes seen. The settlement was back above the 100-day moving average as the market experiences indecisive action with summer fading away. Upside follow-through will find initial resistance near 2.78 and then at the 9-day moving average at 2.82. Lower trade will not find support until the early August lows at 2.57.
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