OPEC to Maintain Production
The US job report today showed strong employment growth domestically, potentially keeping the demand bid in the commodity markets, particularly energies. The healthy job market does, however, put continued pressure on the FOMC to break away from the global easing pattern, and more seriously consider hiking rates in the nearer future. The demand can therefore theoretically be reduced as concern from market participants over tightening money supplies that lead to less willing buyers. So from a fundamental standpoint, it could be essentially a wash, with some price discovery within the recent 57 to 62 dollar range as the market looks for other news to produce a breakout.
The OPEC meeting that convened today went as expected, with the world’s largest oil cartel reaffirming their commitment to current production levels. It came as little surprise, though the market has reacted in trading lower, as over supply fears sneak back into the forefront of the price discovery. This means that production abroad will, at a minimum, remain at its current levels and more likely will increase, with Libyan and Iranian oil potentially coming online sometime before the next meeting, which is scheduled for 6 months from now. It is not unprecedented for the cartel to act on production levels outside of the scheduled format, though it would appear less likely even in the face of renewed selling, considering the unanimous consensus at today’s meeting. It would seem reasonable for the market to take a closer look at the low end of the recent range and, if violated, should lead to a more significant test of the 50 dollar support in the coming weeks.
The supply picture in the natural gas market has now shown its second better than expected weekly build in a row. The price prior to the release of 132 BCF over the expected 121 BCF was around 2.63, yet hasn’t traded significantly lower. In fact, the initial selloff that saw a low of 2.55 was met with rather strong buying, considering the bearish nature of the report. It would appear to be a fairly bullish commentary that the market has sustained its price at or near 2.60, possibly indicating that the increased supplies are priced into the already low price for natural gas.
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