This week has been the tale of two markets. One being driven lower by a gradual shift in the fundamentals to bearish, the other driven higher by the emergence of a surprise shift in a weather pattern. Crude oil has turned bearish while natural gas is set up for perhaps a test of prices not seen in nearly 4 years later this winter.
Adding further to the downside pressure are expectations of lower demand. The U.S. Dollar continues to be supported by rising U.S. interest rates. This is making the dollar a more attractive asset to the detriment of several emerging market currencies. This is helping to make dollar-denominated crude oil too expensive to foreigners, leading to the drop in demand.
The downside momentum is building and the only way to stop prices from falling further is to cut production. We saw earlier in the week what the mere mention of Saudi Arabia and Russia discussing possible production cuts in 2019 can do to prices. So unless the drive toward lower production starts to gain traction, prices are likely to continue to slide.
There is not much the market can do about demand. A weaker U.S. Dollar would definitely help, but that isn’t likely to happen unless inflation cools and the Fed stops raising rates. Lower crude…