Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The trading week was dominated by concerns over the Chinese economy as the crude oil experienced its first losing week since mid-June despite a late rally spurred by short covering and another drop in rig counts. The September contract ended today’s session with a gain of 86 cents at 81.25, while the active October tacked on 76 cents to settle at 80.66. The heating oil lead the complex, gaining over 6 ½ cents while gasoline ended near unchanged.
Reports that real estate developer China Evergrande Group had filed for bankruptcy heightened concern that had been evident all week regarding China’s economic recovery. Significant increases in China’s diesel exports in July announced today added to the questions surrounding the direction of their economy. Digestion of the large draw in Wednesday’s storage report offered underlying support along with a pullback in the dollar and end-of-week short covering.
Despite the gains seen today the market settled below the 9-day moving average to continue the near-term downside bias. With news flow out of China remaining negative, the next level of support surfaces at 78.19, which would achieve a 38 percent retracement of the rally since late June. Below there the next significant area would be 76.00. A continuation of today’s higher trade will encounter resistance at the 9-day moving average currently at 82.00.
Natural Gas
After trading sideways yesterday, the market returned to its downside bias, making a low at 2.524 today before ending with a loss of 7 cents at 2.551. The weekly storage report came in near expectations, with the 35 bcf build putting total stocks 10.8% above the 5-year average. This overhang continues to be the main impediment to rally attempts as ample production and below capacity LNG flows have kept the supply/demand balance in favor of the bear case throughout the summer. Underlying support was offered by a lower production trend at midweek, but another drop in rig counts of 6 did little to stir end-of-week buying interest. The weak tone and settlement below the 100-day moving average continues to signal a test of recent lows near 2.46, and if momentum builds the 2.25 area is not out of the question. The 100-day moving average at 2.60 now becomes initial resistance on a bounce, followed by 2.67.
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