Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The market made up ground over the last two sessions as the crude oil gained 78 cents today to end the week at 79.83. Products lead the complex higher in response to multiple overseas refinery shutdowns and lower ARA stocks reported yesterday, as the gasoline added 6 ½ cents while the heating oil was higher by 14 cents on a breakout to new contract highs and a settlement at 3.2673 basis October.
This morning’s action was tepid awaiting Fed Chairman Powell’s speech at Jackson Hole. Interpretations were mixed as crude lost ground following his comments reiterating the 2 percent inflation target and willingness to do whatever it takes to get there. Buying interest was based largely on short covering after yesterday’s failed attempt at penetrating Wednesday’s low at 77.62. A drop of 8 oil rigs in the Baker Hughes report added late session strength.
Despite the bounce, the market remains bogged down by multiple concerns. Chinese economic issues are the main impediment to a recovery, followed by the possible extension of production cuts by the Saudi’s and growing exports from other OPEC producers, most notably Iran.
The market settled above the 9-day moving average but ran into trendline resistance near today’s high at 80.45 basis October crude. Trade above there would target 80.88 which is a 50 percent retracement of the break since early August. The double bottom from Wednesday and Thursday near 77.60 marks initial support, with a move below that level targeting 76.00.
Natural Gas
Weakness continued early in yesterday’s session, with a new low for the move reached at 2.529 prior to the weekly storage report. The small build of 18 bcf compared to expectations for an increase of 33 took the market by surprise as prices quickly jumped by as much as 14 cents soon after the release. The build put total stocks at 3,083 bcf which was 9.5 percent above the 5-year average. After early weakness today, the market continued its upside recovery, closing with a gain of 2.1 cents at 2.657. End-of-week short covering offered support to the market with volume light and an inside day on the charts. A brief respite from the recent heat is expected over the weekend, with forecasts returning to above average expectations next week and as we move into September. Background concerns regarding tropical storms and the odds of their development into the Gulf of Mexico have tended to be a net negative due to their potential to back up supplies at coastal LNG facilities. Prices have tested and failed near the convergence of the 9 and 100-day moving average near 2.69 the last two days as that level offers key resistance. A settlement above there will be necessary to build any upside momentum. The 2.57 area continues to offer support, with a settlement below there opening up the possibility of follow-through to test the June low at 2.377.
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