For this week’s edition of the SIA Equity Leaders Weekly, we are going give an update on both crude oil (CL.F) and natural gas (NG.F), two key energy commodities that have posted solid gains this year. Supply seems to be a key factor for both commodities price movement as well as US interest rate policy is important to pay attention to for further guidance as to where these commodity prices may go.
Last Friday in her speech at Jacksonhole, WY, Jannet Yellen of the US Federal Reserve gave little indication as to when the next interest rate move may be, but she did give some indication with a hawkish tone, stating “the case for raising rates has strengthened in recent months”. Economic data is pointing towards a stronger US economy as well as markets seemed to have shaken off the post Brexit jitters and will be important to pay attention to as to how interest rate policy decisions will affect commodity prices as they often move inverse to the US dollar
Crude Oil (WT.F)
Crude oil closed at $44.70 on Wednesday down 3.5% on the day, forming a new column of O’s finding very strong resistance at the $50 level. The recent rally in oil this month has been primarily on the back of rumors that OPEC nations are considering a production freeze in their meeting next month in Algeria. This is not the first time a rumor like this has surfaced, and many analysts are skeptical that it will come to fruition as the Saudi Arabia oil minister believes no “significant intervention” is needed in the markets. Oil supplies are still increasing with the underlying supply-demand fundamentals being the prevailing factor in the commodity’s price movement.
In looking at the chart we can see there is strong resistance at around the $48-$50 level which crude has struggled to break through this year and just bounced off of. Downside support for CL.F can be found at $43.06, $41.39 and $39. Watch these support levels for a reversal as we may see a trading range for crude between these levels. With an SMAX of 10, CL.F is showing near term strength vs the asset classes.
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Natural Gas (NG.F)
Natural gas is back on the way up after hitting lows at $2.50 earlier this month to settle at $2.89 after Wednesday's trading. Similar to crude, we are seeing strong resistance coming into play at the $3.00 level, which it wasn’t able to get through in July with NG.F prices not having been above the $3.00 level since last May. A move through this key resistance level could see a move towards the $3.12 resistance come into play with little resistance past that level. We can find support for NG.F at ~$2.65 and below this at $2.50.
Supplies are still a factor putting a ceiling on natural gas price movement in the shorter term with inventories sitting ~8% higher year over year for this week as well as ~8% above the five-year average for this time of year. A warmer autumn could have an effect and increase withdrawals before going into the winter months by extending the demand for natural gas in air conditioning units.
With an SMAX score of 10 out of 10 natural gas is exhibiting near term strength against the asset classes.
For a more in-depth analysis on the relative strength of the equity markets, bonds, commodities, currencies, etc. or for more information on SIACharts.com, you can contact our customer support at 1-877-668-1332 or at siateam@siacharts.com.
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