Today feels like a correction day after strong rallies in the energy markets, including crude, gasoline and natural gas. It is not uncommon to see a correction on Friday when the balance of the week has seen the price discovery grind in one direction. There are some economic releases today that could have an effect on the price action, though it would take some significant divergence from expectation to produce any real effect.
Fundamentally, there is not much new to drive the price action. Following yesterday's somewhat conflicting reports on demand from the IEA and the World Bank, today the Saudi Oil minister reiterated their commitment to current production levels, and said that they could even see increases in the face of increased demand. One thing is certain, and that is that there will not be anyone pulling their foot off the gas pedal of production in what has become a bit of a game of chicken with supplies. Currently, with the global economy performing well enough to keep up with production, there doesn’t seem to be much of an issue (particularly considering that we are 35 percent higher from the lows in WTI). It will get interesting if either we start to see some slowing economically or we see central banks stop the easy money (or in the US's case we see a hike in rates).
Next week will feature the FOMC meeting that hawks have been looking to for some time as a possible turning point in monetary policy. That sentiment has subsided for the most part as most don’t expect any real tangible action from the Fed this meeting, but we certainly could see some change in language that could signal a willingness to at least strongly consider a hike in September if the data were to support it.
For now, look to the crude oil for a range trade, with the low end being in the 58 handle and the high at 62. The natural gas should be bought on dips and scaled out, trading higher with a goal of 3.26 by July. Risk reward in the options markets is particularly favorable currently, as the volatility bid has been sucked out of the premiums due to the range bound trade.
Disclaimer: Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors.