The market is currently trading higher across the majority of commodity sectors, save the modestly weaker metals markets. Tuesday’s sharp selloff due to weak Chinese manufacturing has been off set with significantly stronger US data heading into the jobs report on Friday. Virtually the entire glut of data released this week for the US has been positive, including manufacturing, homes, consumer confidence and preliminary jobs data. The one soft sport was the ADP report that featured only 190,000 new jobs versus the expected 201,000. While that is a bit of a miss, it is very modest, and the correlation between the ADP data being predictive of the headline US jobs number is unfounded. The S&P equity market, which had the major pundits crying bear market once again, had meandered in the low 1900 handle before rallying sharply over the past session and a half to be currently sitting above 1960 and looking stronger by the minute.
This macro market condition can’t help but have some effect on the price discovery for crude oil and other energy markets, as participants view the risk on rally as a real increase in fuel demand. There is little doubt that the WTI crude oil would have trader lower had we not seen the strong recovery in the equities considering the surprise build in inventories for crude oil and the less than expected draw in the gasoline stocks. Following the report, we saw crude trade down to the low 43 dollar range before catching a coattail rally with the equities that turned the sentiment around completely, producing a high today of 48.30. The volatility is ferocious and unpredictable currently, as the bulls and bears are in a standoff over the price discovery of crude with the 45 dollar pivot being the fulcrum point. Currently, the market is trading in the low 47 range and could, with any modest selling in the equities, revisit the earlier volatility but to the downside. While it does feel as if the absolute low for the recent market action is set down at 37.75, there certainly does seem to be a chance on any given data release to find a dip below 45 dollars for a long entry into what has become a solid base to buy against.
The natural gas has also done its best crude oil imitation in shrugging off its surprise build in inventories, as it trades higher after the release showing a build of 94 BCF vs. the expected 88 BCF. The trade higher makes some sense regardless of the inventory picture, not just because of the equity turn around, but also due to the level that it is currently trading at. Strong support at the 2.60 price level seems to be enough to produce reasonable upward market reactions, even if the expectations for significant moves higher have been substantially reduced.
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