Crude Oil and Natural Gas in Holding Pattern

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This morning crude oil futures prices are trading above $97.10 price with a small gain from yesterday’s closing. Today is most important day for the global market as whole eye is on FOMC meet decision on interest rate change and anticipation of third round of easing by Fed. Other than FOMC, the producer price index of US is likely to increase in the last month, which may indicate growing economy but no market reaction is expected.

Weekly jobless claims data may come in a blend but will be overshadowed by the FOMC. Let’s face it today most everything will be ignored except for the FOMC rate decision, statement and testimony by Mr. Bernanke, which is all scheduled for afternoon US time.

The US Energy department said in a report that an increase in import and production have created higher stocks as refineries input has declined in the last week. However, demand distillates has been increased from 3.22 to 3.26 million barrels per day. On the other side, gasoline demand has been declined sharply by 0.50 percent which may limit the gains in oil prices.

The National Hurricane Center reports that storm Nadine is just below hurricane strength, which may create supply disturbances in PADD III region. Another tropical storm Kristy is also near to PADD V region may have impact on production and refining units, which may again support oil prices. Thus, oil prices may take positive cues out of this.

The death of the US Ambassador in Libya was reported yesterday and may create some volatility on the back of political issue concerned. Overall, ahead of FOMC announcement, we may expect oil prices to trade in a tight range but volatility can be expected after it.

Markets are not sure exactly what to expect from the FOMC. The Fed may not go for further easing program as the extended Operation Twist program is continuing till current year end.

US debt to GDP ratio has been climbed above 100 percent, as the balance sheet has swelled by $3 trillion. Expect the Fed to continue keeping its interest rate low till 2015, and remain unchanged at 0.25 percent. If the Fed’s offer a bare minimum plan, markets will be very reactionary, traders are expecting in excess of 500b in easing.

Gas prices are trading is holding above $3.059 with a small loss this morning. The largest LNG consumer Japan is likely to increase its LNG import by more than 15 percent in 2013, which may support gas futures prices to trade on higher side. This week we can expect natural-gas storage injection figure to again come in below seasonal norms due to the effects of Hurricane Isaac, which shut most Gulf of Mexico production for several days.  As per National Hurricane Center, storm Nadine is just below hurricane strength, which may again support gas prices. Thus, gas prices may take positive cues out of this, ahead of gas storage report from EIA later today.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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