In what appears to be a fairly dramatic move, China cut its lending rate and cut the reserve capital that banks must hold in an effort to reinvigorate their lagging economy. This is the first time that China has moved on both measures at the same time, possibly a signal that their aggressiveness in easing should clear the way for further cuts throughout the year, particularly if there is little reward from this action.
To be fair, the Chinese interest rate picture has room for this type of intervention with the overnight rate now at 4.85%. Theoretically, this should have an affect on the demand for commodities, though most likely it will be balanced out by the US bias towards near future tightening.
On Friday data on rig counts was release by Baker Hughes (NYSE:BHI), showing 3 rigs went offline last week. This data is continuing to be monitored to attempt to ascertain when the bottom is in from a production standpoint here in the US. While the rig count declines have slowed by the least in weeks, overall they are still shrinking. This would seem to indicate that even though demand is relatively high, it is not necessarily enough to support full production out of the US.
Of other interest to the energy complex is that the US showed record high exports for the month of May for condensate, an ultra light crude that is legal for export. While it is currently not legal for the US to export its WTI crude for the most part, this could lead to further discussion about any change to the landscape of global crude oil trade rather significantly.
Natural gas remains stuck in neutral as any rallies have been cut off either technically or through diminishing fundamentals. Last week did show a third week in row of less than expected builds in inventories which put the surplus significantly lower than it was last year. However, this alone has not been enough to catapult the commodity out of the range it has been mired in for several weeks now, between 2.70 and 3.00. Utilizing writing of options to bring in some premium for the right risk profile could be advisable in an effort to earn some premium while waiting out the sideways action.
Disclosure: Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors.