The recent rally in the crude markets appears to be running out of steam as the price action is once again trading just below 60 dollars in the WTI contract. The petroleum energy markets always seem over shoot their fair pricing and this could be the set up of a good example of that possibility. While there have been some bullish developments in shifting supply data, global unrest and reduced rig counts in the US, the overwhelming global supply of crude has not changed much. Consider that the major consumers like China have been using the depressed price to shore up their strategic supplies coupled with speculation that they are close to full if not already full, and you can see that once that pipeline is shut down, some rather large supplies will be left untouched.
The rally has also borne the weight of significant hedgers returning to the market driving the price higher as consumers worry that the return to 75 dollar, or more, crude prices could nullify the recent windfall their respective business have been enjoying with the previous 50+ percent declines in product costs.
This analysis juxtaposed against a tightening price discovery the highs for the year could certainly be the beginning of a correction to the correction. A key factor that could push that car over the cliff could come today if Baker Hughes' (NYSE:BHI) US rig count release shows any indication of rigs coming back into use following this rally.
Yesterdays soft economic data for the US indicted to market participants that any rate hike talk should be relegated to, at the earliest, late 2015 and more likely early 2016. This sent the dollar lower and the indices sharply higher to all time highs, a sentiment that has continued throughout the evening session and into the US open. Confidence and manufacturing data could continue that staggering rally, though it is hard to determine exactly what the market (equity indices) would favor more currently; good economic data or bad economic data leaving easy money on the table longer. The commodities markets seem to be rending themselves from this equation to some extent at these elevated (relatively) prices.
The natural gas report yesterday showed 111 BCF, just under the expectations and it was off to the races to test the 3.00 handle getting as high as 3.02 before leveling off. This has been an expected turn of events with the reaction from here being more difficult to ascertain. Fundamentally, not much has changed in the weather (demand) or supplies. However, the technical reversal from the lows was a very strong indicator lending credence to the idea that this market is trading more technically than fundamentally. If that is truly the case, then the target of 3.25 to 3.30 above would make sense as the price discovery attempts to close the gap it left back in December of 2014.
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