Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The market registered steep losses yesterday, losing $3.70 on the December crude oil, as economic concerns continued to build in the US and abroad. Today’s action saw most of those losses recouped as the crude gained back $2.99 to end the week at 75.89. the recovery confirmed ideas that the downside was overdone, with trade below the 75-dollar area triggering algo selling that flushed out stops as the market lost over 2 dollars within an hour.
Digestion of the DOE report continued to pressure the market, with strong US production helping to ease concerns about availability as inventories built in excess of 17 mb over the last two weeks and Cushing stocks improved. The return to contango also weighed on trade, while economic news tended to the negative side as jobless claims were above expectations to heighten concern about the direction of the US economy. Increased tensions in Gaza reminded trade that there could still be some need for risk premium and helped values recover today.
The price reversal points to a retest of the 80-81 range but will first have to settle back above the 200-day moving average at 76.20 and then work through the 78.50 area, which would mark a 38 percent retracement of the break from the mid-October highs. With the range traversed over the last two sessions, a return to lower trade would not find much support until the 73.00 area.
Natural Gas
The market traded lower yesterday following the storage report and found strong follow-through selling today. The December contract took out the 3-dollar level to settle at 2.96 for a loss of 10.2 cents on the day. Two storage numbers were released following a one week delay due to system upgrades at the EIA. Data for the week ending November 3rd indicated a 6 bcf withdrawl, which was in line with estimates, while the November 10th number showed a 60 bcf build in contrast to expectations at 40. The market had been questioning the validity of recent strong production numbers, but the large injection validated the output data and sent prices lower. The weakness was maintained despite forecasts indicating a swing to cooler than normal temperatures into the end of the month. The breakout to the downside targets trend line support in the 2.80-2.83 area. The 3-dollar level now becomes initial resistance on a bounce, followed by the 9-day moving average near 3.09.
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