The recent rally in the crude markets appears to be running out of steam
as the price action is once again trading just below $60 in the WTI
contract. The petroleum energy markets always seem to overshoot their
fair pricing and this could be the set up of a good example of that
possibility.
While there
have been some bullish developments in shifting supply data, global
unrest and reduced rig counts in the United States, the overwhelming
global supply of crude has not changed much. Consider that the major
consumers like China have been using the depressed price to shore up
their strategic supplies coupled with speculation that they are close to
full if not already full, and you can see that once that pipeline is
shut down, some rather large supplies will be left untouched.
The
rally has also borne the weight of significant hedgers returning to the
market driving the price higher as consumers worry that the return to
$75-or-more crude prices could nullify the recent windfall their
respective business have been enjoying with the previous 50%+ declines
in product costs.
This analysis juxtaposed against a tightening price discovery could
mean the highs for the year may be the beginning of a correction to the
correction. A key factor that could push that car over the cliff could
come today if Baker Hughes' U.S. rig count release shows any indication
of rigs coming back into use following this rally.
Yesterday's
soft economic data for the United States indicted to market participants
that any rate hike talk should be relegated to, at the earliest, late
2015 and more likely early 2016. his sent the dollar lower and the
indices sharply higher to all time highs, a sentiment that has continued
throughout the evening session and into the U.S. market open.
Confidence and manufacturing data could continue that staggering rally,
though it is hard to determine exactly what the market (equity indices)
would currently favor more: good economic data or bad economic data
leaving easy money on the table longer. The commodities markets seem to
be rending themselves from this equation to some extent at these
elevated (relatively) prices.
The natural gas report yesterday
showed 111 BCF, just under the expectations and it was off to the races
to test the 3.00 handle getting as high as 3.02 before leveling off.
This has been an expected turn of events with the reaction from here
being more difficult to ascertain. Fundamentally, not much has changed
in the weather (demand) or supplies.
However, the technical
reversal from the lows was a very strong indicator lending credence to
the idea that this market is trading more technically than
fundamentally. If that is truly the case, then the target of 3.25 to
3.30 above would make sense as the price discovery attempts to close the
gap it left back in December of 2014.
By Tory Enerson May 15, 2015
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