Another day, another massive sell off and rally. Tuesday's close re-illustrated the illiquid nature of the futures markets, specifically the equity markets and long term fixed income markets. The stimulus from the Chinese in an effort to support the lagging economy has offered some stability, yet the two way volatility remains very high as indecision and fear rule the price discovery.
Strong US durable goods data this morning will continue to separate the US economic condition from the rest of the global strife, possibly offering some rationale for a bounce higher as the efforts from the Peoples Bank of China start to have some positive affect in the world’s second largest economy.
The energy markets remain relatively neutral as participants attempt to gauge what is priced in and what is not. WTI crude inventories from both the API and EIA featured significant declines in inventories at 5.4 MBs and 7.3 MBs respectively.
Gasoline and distillates were both very modestly bearish with slightly better than expected builds. Essentially, the supply and demand data would seem to be skewed to the bullish side with the growing decreases almost every week in inventories, particularly at these depressed levels. Obviously, global economic struggles have much to do with the continuing decline in crude prices, yet the decline is nowhere near the equity decline, possibly indicating that this particular event is priced in.The reality is that the ramifications of any long-term, continued downturn in crude prices will at some point have negative effects on the economy of the US, eventually out-weighing the organic stimulus that cheaper fuel provides an economy.
Natural gas continues to coil at these lows with ever tightening ranges in the face of other markets extreme volatility. Today’s 4 cents range sets natural gas apart from the rest of the commodity world as ranges are significantly wider across the board.
The risk associated with taking a long natural gas position against the recent lows could be expensive considering the lack of volatility to the high side. Conversely, the low volatility has produced some very attractive option premiums that could offer great risk reward should one be so inclined to bottom feed at these prices.
Disclaimer: Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors.