October Natural Gas
Early last week, October Natural Gas futures appeared to be showing signs of life as the technical picture started to take on a bullish look on the weekly chart. However, like many technical breakouts in the past, this one died once traders realized that any rally would not last without a bullish fundamental outlook.
Last week's technical breakout was thwarted when the U.S. Energy Information Administration released a report that projected natural gas inventories to reach the second-highest level on record. Basically, it was a case of supply increasing faster than demand that convinced the EIA that inventories would continue to rise at a near record pace until at least the end of October.
According to the EIA, natural gas inventories at the end of July were 23% higher than a year ago and 2% above the previous five-year average for that week at 2.91 trillion cubic feet (Tcf).
The EIA report also said that inventories began the gas refill season in April about 173 billion cubic feet (Bcf) below the five-year average, but record domestic gas production has allowed for strong injections that have kept inventories above the five-year average since the end of May.
Based on its latest assessment of supply/demand conditions, the EIA projects that gas inventories will reach 3.867 Tcf by October 31, the end of the summer refill season. This estimate for end-of-season inventories will be about 69 Bcf above the five-year average.
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October Natural Gas
Early last week, October Natural Gas futures appeared to be showing signs of life as the technical picture started to take on a bullish look on the weekly chart. However, like many technical breakouts in the past, this one died once traders realized that any rally would not last without a bullish fundamental outlook.
Last week's technical breakout was thwarted when the U.S. Energy Information Administration released a report that projected natural gas inventories to reach the second-highest level on record. Basically, it was a case of supply increasing faster than demand that convinced the EIA that inventories would continue to rise at a near record pace until at least the end of October.
According to the EIA, natural gas inventories at the end of July were 23% higher than a year ago and 2% above the previous five-year average for that week at 2.91 trillion cubic feet (Tcf).
The EIA report also said that inventories began the gas refill season in April about 173 billion cubic feet (Bcf) below the five-year average, but record domestic gas production has allowed for strong injections that have kept inventories above the five-year average since the end of May.
Based on its latest assessment of supply/demand conditions, the EIA projects that gas inventories will reach 3.867 Tcf by October 31, the end of the summer refill season. This estimate for end-of-season inventories will be about 69 Bcf above the five-year average.
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Technically, the sideways chart pattern produced a triangle chart formation on the weekly chart. Although the market tried to breakout to the upside early last week, the move never gained enough traction to take out the previous tops at 2.983 and 3.013. This indicated that strong sellers are still controlling the market.
Given the $2.638 to $3.180 range, the rally essentially found resistance at the mid-point of the range at $2.909.
The market is likely to finish the week lower based on the price action following the release of last week's EIA inventory figures. The momentum created by the sell-off and the chart pattern suggests the market is now headed to the bottom of the triangle that comes in at $2.755 this week.
In addition to the supply/demand projections, the EIA report also said that it expects monthly average spot prices to remain lower than $3/MMBtu through October, and lower than $4/MMBtu through the end of 2016.
Based on the EIA estimates and the weekly chart pattern, it look as if the market is going to have trouble overcoming $2.909 to $3.000 into October. It also suggests that the market may trade $2.700 to $2.600 over the next two months.
October Crude Oil
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This week is likely to begin with crude oil fundamental and technical pictures pointing lower. Fundamentally, despite another weekly inventory draw down according to the EIA, October crude oil futures reached a new low for the year. This is because the pace of the drawdowns is nowhere near the pace of the output by U.S. producers.
Technically, the momentum is clearly to the downside with the market trading inside a bearish downtrending channel. The downtrending angle that has been guiding the market lower for nine weeks comes in at $42.65 this week.
In order to maintain the bearish trend, crude oil must remain under this angle. The inability to sustain the break under this angle will suggest a slowdown in momentum. This will be the first sign of a bottom. However, a sustained move under $42.65 will put the market on a path toward the psychological $40.00 level. If the market continues to follow the angle then look for a test of this level within the next 2 to 3 weeks.
October Unleaded Gasoline
Gasoline stockpiles in the U.S. fell at a much faster rate than expected the week-ending August 7, according to the EIA. The latest inventories report showed greater demand for gasoline helped lead to a bigger than expected drawdown of 1.3 million barrels. Traders had priced in an 800,000 barrel drawdown.
The technical picture looks a little more promising for October Unleaded Gasoline futures. Not only did the low from the week-ending August 7 hold at $1.4440, but the close may be strong enough to create enough upside momentum to take out a resistance angle at $1.5379. This could trigger the start of a 1 to 2 week short-covering rally.
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