Crude Oil Surge Signals Short-term Bottom

Crude oil futures surged on Thursday on stronger equity prices and a stronger-than-expected weekly U.S. Energy Information Administration inventories report. Stock investors are in a bargain-hunting mood, taking advantage of relatively “cheaper” prices for a second day.

Considering the volatility we’ve seen this week in the financial markets, crude oil appears to be consolidating at this time. The main trend is still down, but October crude oil is in a position to close higher for the week if it can sustain a move over $40.45. This could trigger the start of a meaningful short-covering rally.

Fundamentally, the market is being supported by the EIA figures which showed weekly commercial crude oil stocks fell by 5.45 million barrels. This may be supportive for prices, however, we’ll have to see how the market handles high petroleum product inventories and a seasonal post-summer decline in refinery demand in the coming months.

December Comex Gold prices traded flat on Thursday after yesterday’s strong break which was triggered by a better-than-expected U.S. durable goods report. Today’s U.S. Gross Domestic Product report was stronger-than-expected, but gold traders failed to respond. However, this report is likely to keep a lid on any rallies.

Gold traders are worried that the relative calmness in the equity markets after China took positive action to stem the volatility, and the strong U.S. economic reports this week may have put the Fed back on track for a September rate hike.

Yesterday’s strong durable goods data and today’s solid GDP report are helping to pressure the EUR/USD and GBP/USD. Additionally, the stock market recovery has taken out some of the volatility that earlier in the week drove down the U.S. Dollar.

Today, the U.S. reported that preliminary GDP was up 3.7% versus an estimate of 3.2%. Last quarter showed an increase of 2.3%.

Weekly unemployment claims came in at 271K. This was below the 275K estimate. Pending home sales came in at 0.5%, missing the 1.3% guess.

Tomorrow will be an important day for the Euro with Germany and Spain reporting their preliminary CPI figures. The GBP/USD is also expected to be active as traders will likely react to the latest Second Estimate GDP report. Traders are looking for a reading of 1.6%. This is lower than the previous 2.0% reading.