Weekly Crude Oil
October crude oil futures continued to consolidate on the weekly chart after reaching a low two weeks ago at $92.50. Speculative investors may conclude that this is a buying opportunity, but trend traders are likely to treat any rally as the next potential shorting opportunity.
End-of-the-month position squaring and profit-taking by hedge fund and other money managers are helping to stabilize the market following the prolonged break in price and time from the June top at $105.55. However, the biggest influence on the market last week was the surprise drawdown in supply.
The latest U.S. Energy Information Administration supply and demand report showed a greater than expected decline of 2.07 million barrels the week-ended August 22. Traders were looking for an increase of 1.1 million barrels.
Helping to put a lid on any substantial upside action was the rise in inventories at Cushing, the delivery point for U.S. crude futures. Its inventories rose 508,000 barrels.
Technically, the market is finding support at $92.82 to $92.50. The key area that has to be overcome is $95.13 to $95.55. If buyers can sustain a move over this area then the market may challenge the next key level at $97.12. Despite the possibility of a short-term rally, both the fundamental and technical pictures are not signaling the return to bullish conditions.
Short-term speculators may be able to play the upside for 1 to 2 weeks during this position squaring process, but trend traders are likely to use this rally as a new shorting opportunity.
Weekly Natural Gas
Bullish traders took control of the October Natural Gas market last week after a government report showed storage figures that were below trader estimates. The latest supply and demand report from the Energy Information Administration showed an injection of 75 Bcf the week-ended August 22. Traders had priced in an injection of 78 Bcf. The news caught short-sellers by surprise, triggering a short-covering rally.
To some traders, the report was relatively flat which leads one to believe that weather is still the driving force behind the current bottoming action and short-term rally. Although a cooler than normal summer hurt demand from June to mid-August, the recent return to more summerlike temperatures helped increase power plant demand, underpinning the market.
Technically, the main trend turned up on the daily chart when the last swing top at 4.041 was violated. There is some evidence that aggressive counter-trend hedge fund buying is helping to support the move, however, most traders conclude that short-covering is the main driving force.
The chart pattern indicates that this rally is likely to continue until the first key 50% level at 4.158 is reached. Because of the huge supply, short-sellers are expected to pick up activity if this price level is reached.