Energy Price Outlook
Energy markets napped yesterday during a “risk-on” party that helped equities recover to near five-year highs and the euro currency to its highest level in nearly a month. That may make it increasingly difficult to trade the energy markets in the near-term, as the traditional relationship with the economy appears to be breaking down to some degree. We would suggest that the market has reached a short-term equilibrium and will likely focus more on investment flows and geopolitical issues for guidance. Those are both leaning slightly negative at the moment, along with technical factors and elevated levels of U.S. oil production. The upside may look to events in Europe and the higher stock market, but it’s difficult to determine if and when the focus will return to those issues. Monday’s reported increase in Chinese imports as well as Iran’s “Muddy Waters” plan to block the Strait of Hormuz could also be supportive. We would look for a rally toward the 50-day MA at $93.95 over the next week or two followed by a retest of this month’s low at $87.70.
Yesterday’s trade in WTI closed +$0.24/bbl in a relatively quiet session with a $1.02/bbl trading range. Brent was -$0.73 and was pressured more in the front-months due to expiration. A small bounce was seen in WTI just before the NY session opened based on better earnings from Goldman Sachs and a boost of its dividend. Around the same time, Germany said it was open to a credit line for Spain, which Spain had suggested overnight that it would use to buy its bonds. There was also positive economic data overnight and early in the session in the form of the German ZEW, U.S. industrial production, and the U.S. NAHB housing survey. The best that WTI could do though was to advance 47 cents shortly after the open and then fall to the day’s low 55 cents lower shortly after that.