Energies Continue To Grind Higher

Energy prices are pushing the yearly highs despite bad Chinese PMI data. The price discovery remains at the whims of the central bank planners when bad manufacturing data, which should have a negative bias toward energy pricing, produces a continuation rally based on hope that this soft data will keep the money spigot on high for the foreseeable future.

We are seeing further tightening of the contango affect with the June/August WTI spread coming in ten cents at current market pricing. This will continue to encourage producers to bring their products to market rather than store them for future delivery. This should further alleviate price pressures due to oversupply.

We continue to keep our eye on the mergers and acquisitions that continue to be a hot space particularly in the energy sector. The 'price war' that some believe OPEC has been waging against the US shale industry has had the desired effect of reducing the active rig counts nationally, yet this tactic could back fire as we see more and more of the majors gobble up the smaller producers at a price that could make future ramp ups in production more profitable.

The fundamental push and pull directionally will, in my estimation, keep the pricing relatively neutral, with perhaps 50 being the lower barrier for WTI and 65 the high barrier. Keep in mind, however, that the volatility and liquidity of the market when we do test those key points of contention in the price of WTI will have a lot to do with whether or not the support or resistance is violated.

Natural gas has shown strong signs of a modest recovery with less than expected builds in inventories and some modestly warmer temperatures driving price discovery higher. Resistance at 2.87 then 3.06 will be key area to breach if the market has a chance to reach the ultimate medium term goal of 3.26.