Crude Oil and Natural Gas after Bernanke Testimony

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By FX Empire Analyst - Barry Norman
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Crude oil prices have slipped from its weekly high and currently trading near $88.8/bbl with loss of 0.50 percent in early morning trading. Concern of economic growth of worlds’ largest oil consuming nation has weigh on prices. The implications of the IMF downward revision in global growth are still affecting prices.

The Chinese Premier has said that labor growth will be more severe in short run, which indicates a continued slow down of economic growth. On Tuesday, US Federal Reserve Director Bernanke warned of a further slowdown in the US economy and a "frustratingly slow" rise in employment. In testimony to Congress Bernanke offered a gloomy outlook for the United States, warning that after growth of around just two per cent in January-March, "available indicators point to a still-smaller gain in the second quarter". Thus, theses two above reasons are likely to limit the gain in oil price movement today.

However on other side, per Fed testimony the Federal Reserve is prepared to act to boost growth if the labor market does not improve. Indirect way of giving easing are presented like buying mortgage back securities, cutting interest rate in central bank reserve etc.

Thus, optimism may support oil to take some positive cues. Most importantly, today is the day for inventory data. The (API) American Petroleum Institute, crude oil stocks have declined by more than 2 million barrels, whereas US energy department report is expected to show 1.3 million barrels draw down in DOE report due later today. The drop in crude oil stocks may support oil prices to trade on higher side.

From economic data front, the US housing starts and building permits are likely to show a sluggish picture. Fed’s Beige book releases are awaited tonight on US economic growth. Overall, we may expect trend will be upside for the day.

Natural Gas prices are trading below $2.780/mmbtu with loss of near 0.50 percent in electronic trading as investors took profits. As per US weather channel, US temperature is expected to remain normal for 2-3 days, which may limit the demand from residential or industrial sector. Thus, gas prices may come under pressure. The US Energy department indicated that natural gas storage is expected to increase by 33 BCF in the last week. However, a fall in consumption of power sector may limit the gain in prices.

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