The market generally seems to be confused as there are big moves in oil one way, followed by equally big moves in the opposite direction the next. Yesterday’s strong up move has been more than offset by the risk off move today.
Equity markets are certainly leading the price discovery with traders unsure about how to interpret the future following last week’s Fed meeting. Yesterday we heard the first committee member speak with Lockhart stating that the move higher should still be this year and that economic criteria appears to have been met, particularly where the employment mandate is concerned. While he acknowledged that inflation was not near the levels the Fed desires, he did state that he felt it had done enough to warrant a move soon. Yet in frighteningly Fed like double talk he went on to say that the decision not to act yet was unanimous and the right decision at the time. The unfortunate truth here is that this has just left the price discovery at the behest of the Fed's whimsy for at least another 30 days, the monkey still firmly rooted on the markets back.
Energies do tend to adhere to more direct fundamentals yet currently the WTI has fallen into relative lockstep with the risk on/risk off mentality, merely reflecting the equity market moves as traders attempt to apply demand fundamentals based on these knee jerk almost daily reversals. The result is a volatile market though only within this relatively small range. The November WTI contract continues to move 1 to 3 dollars a day but has remained within about a 5 dollar range for several weeks now, a feat that is not easy to achieve. Competing forces from bull and bear camps continue to make their case through rhetoric and price discovery for elongated moves in either direction yet the parity of opinions seems to have the market fixed in this mid 40's area for the time being.
The evolving landscape of the global crude oil market would appear to give a slight edge to the bulls with Saudi refining reducing the export data for the world’s largest producer and US rig counts back to multi week declines. The other important factor in favor of higher pricing is the always present possibility of regional strife in the Middle East becoming headline news again, a fact that has an underlying supportive bid in this already inexpensive crude market.
Natural gas has followed the above script as well, though in a slightly different manner. Yesterday we saw a technical trigger to the down side as the market gap opened lower violating support trend lines and looking as if there could be some further trade lower. However, follow through was minimal and the gap above is close to being filled as we speak. Trade above 2.675 in the November contract (currently trading at 2.658) should spur trade higher a put the price discovery right back into the range bound trade again.