July Natural Gas Weekly Recap
Natural gas prices continued this week’s price slide on Thursday after U.S. government data showed that natural gas supplies in storage rose more than expected last week.
According to the U.S. Energy Information Administration, natural gas storage rose by 75 billion cubic feet in the week-ended May 19. This was slightly above the pre-report forecast for a build of 71 Bcf. Last week’s report showed a build of 68 Bcf.
The EIA also said that natural gas in storage currently stands at 2.444 trillion cubic feet. Stocks were 371 Bcf less than last year at this time and 241 Bcf above the five-year average of 2.203 Bcf.
With the storage report out of the way, traders are going to shift their focus back to the weather, which has been a source of confusion this week, due to conflicting weather models.
This week, actual temperatures have been warmer than normal over the eastern 2/3rds of the country and cooler than normal over the West.
The longer-term forecast suggests that some parts of the country will experience a temperature drop of 8 to 20 F below normal. This could drive up heating demand. High pressure, on the other hand, is expected to build into the southern and eastern U.S. this week-end with temperatures warming back into the 80’s and 90’s, although cooling next week.
According to natgasweather.com, overall, natural gas demand remains slightly stronger than normal.
Weekly July Natural Gas Technical Analysis
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Despite this week’s sell-off, the main trend is still up according to the weekly swing chart. A trade through $3.209 will change the main trend to down. A move through $3.506 will signal a resumption of the uptrend.
The short-term range is $3.209 to $3.506. Its 50% level or pivot at $3.358 is controlling the short-term direction of the market. A close under this level will give the market a slightly downside bias.
The main range is $2.888 to $3.506. Its retracement zone is $3.197 to $3.124. This zone is the primary downside target.
I suspect that longer-term investors are bullish. They are banking on falling production and rising exports to support the market. I think they are just marking time by holding the market in a range until the summer weather returns. They are hoping that inventories hold steady until the summer heat increases demand.
If the hedge and commodity funds are looking for value then I believe they are going to start returning to the market on a pullback into the value zone identified as $3.197 to $3.124.
July West Texas intermediate Crude Oil Weekly Recap
U.S. West Texas Intermediate and internationally-favored Brent crude oil closed nearly 5% lower on Thursday after OPEC disappointed investors by failing to agree to deeper production cuts along with its approved nine-month extension.
Based on the price action, it looks as if we had a classic “buy the rumor, sell the fact” situation. Speculators had been driving the market higher since the first week in May in anticipation of a six to nine month extension.
However, after investors discovered that the negotiations for the extension would go smoothly, they wanted more. Many had priced in deeper production cuts. When the OPEC-led group failed to deliver the goods, the aggressively long hedge and commodity funds, started booking profits and pairing positions. This led to further liquidation by small speculators, sending the market into a freefall.
Since the sell-off caught many traders by surprise and was likely led by long liquidation, we could see a rebound rally if support can be established inside the WTI and Brent retracement zones. This could trigger a short-covering that will likely set up the next shorting opportunity.
In my opinion, agreeing to the nine month agreement without deeper production cuts likely means that U.S. production will increase. This, combined with lower demand, could keep a lid on crude oil prices into the end of the year.
Weekly July West Texas Intermediate Crude Oil Technical Analysis
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The main trend is down according to the weekly swing chart. The recent rally was impressive, but the move wasn’t strong enough to trigger a change in trend.
The main range is $58.15 to $44.13. Its retracement zone is $51.14 to $52.79. This zone stopped the rally this week when the market traded $52.00. There were no surprises on the move since sellers tend to show up when markets test retracement zones during downtrends.
The new short-term range is $44.13 to $52.00. Its retracement zone is $48.07 to $47.14. This zone is the new primary downside target. Given the current downside momentum, I suspect we’ll be testing this zone next week.
We could see a technical bounce on the first test of the zone because of profit-taking, short-covering and some aggressive counter-trend buying. These buyers are going to try to build a secondary higher bottom that could build into a bullish move over time.
Bearish traders are going to try to take out this zone in an effort to increase the importance of the $52.00 high and to try to build the downside momentum needed to take out $44.13.
Don’t be surprised if we see a choppy, two-sided trade following a test of $48.07 to $47.14 until investors figure out their next move.