The price action late this week in the three major futures energy markets: crude oil, gasoline and natural gas, suggests the summer sell-off may be nearing its end. Keep in mind that only the daily charts are showing signs of short-term bottoming action. The longer-term weekly and monthly charts still have downside biases.
For the most part, the trading action is being fueled by technical chart factors and not by fundamental factors. Technically, these three markets are oversold. This means that the size of the sellers on the offer is shrinking, shifting the edge to the bid side, or the buyers. The buying is being triggered by profit-taking and aggressive bottom picking.
Some of the profit-taking is related to fund buying. These money managers may be trying to book profits before the end of the quarter to enhance their performance and avoid giving back the substantial profits generated by the summer-long break.
Fundamentally, West Texas Intermediate crude oil futures rebounded this week after a weekly government report showed a larger-than-expected fall in U.S. crude oil inventory.
According to the Energy Information Administration (EIA), U.S. commercial crude oil inventories decreased by 4.5 million barrels for the week-ended August 15. Traders were looking for a drawdown of 1.3 million barrels. Although this drawdown did not put much of a dent into the total inventory, it did give short-sellers an excuse to begin booking profits…