Trader Indecision Controls Crude, Gold; Weather Sets Natural Gas Tone

U.S. commodity markets posted mixed results last week with crude oil closing modestly higher, gold finishing marginally lower and natural gas plunging. Crude oil’s range was surprisingly tight as traders fretted over tensions in the Middle East and a slowing global economy. Gold was pressured by a strong U.S. Dollar and natural gas crushed by cooling temperatures.

Crude Oil

U.S. West Texas Intermediate crude oil futures displayed their tightest trading range since the week-ending April 19 as traders battled over both potentially bullish and bearish news. In the end, it looked like the bearish news slightly outweighed the bullish.

Last week, September WTI crude oil futures settled at $56.20, up $0.44 or +0.79%.

On the bullish side, prices were supported by worries over a potential supply disruption in the Middle East. These fresh worries stem from Iran’s seizure of a British Oil tanker the previous week. While no one really anticipates a war between the two countries, the UK would like to get its tanker back. In the meantime, speculators built small long positions just in case the situation escalated. Prices were also underpinned by another large draw down in U.S. crude stockpiles.

On the bearish side, gains were capped and prices pressured by concerns over a slowing global economy. Both OPEC and the International Energy Agency have recently issued reports showing supply to outstrip demand if the global economy continues to weaken. Traders continued to place the blame on US.-China trade relations. Traders are also taking their clues from weak manufacturing data in Europe and the United States. Furthermore, rate cutting central bankers are also raising fears over weakening economic conditions.

Gold

Gold futures also posted a tight range last week that fell inside the previous week’s range. This type of price action tends to indicate investor indecision and impending volatility. There was no follow-through to the upside after the market hit a multi-year high during the week-ending July 19. However, the selling wasn’t strong enough either to take out the previous week’s low. Essentially, neither the bulls nor the fears felt confident enough to take a major position ahead of this week’s U.S. Federal Reserve’s interest rate decision on July 31.

Last week, December August Comex gold settled at $1432.20, down $7.20 or -0.50%.

Helping to underpin the market was expectations of a 25-basis point rate cut by the Fed, and perhaps strong hints at further rate cuts later this year. Keeping a lid on prices were reduced chances of a more aggressive 50-basis point rate hike.

Natural Gas

Speculative natural gas longs are likely on life support after another steep plunge last week. Bullish traders received no support from the U.S. Energy Information Administration weekly storage report, which came in as expected with the selling pressure driven by forecasts calling for cooler temperatures

Last week, September natural gas settled at $2.150, down $0.078 or -3.50%.

Bespoke Weather Services helped drive prices down when it lowered its weather-driven demand expectations for the 15-day outlook period by 4.5 gas-weighted degree days (GWDD). Furthermore, they added, “Cooler momentum continues in the weather forecast, with a stronger trough in the 11-15 day time frame in the eastern half of the nation.”