Technical buying leads to a rally in crude oil at the end of the week, natural gas struggles

Oil, fundamental analysis

A downwardly revised jobs report kept last week’s declining market in place through Friday. However, oil prices rebounded on technical buying and optimism about rate cuts after hitting lows not seen since January. Continuing concerns about falling demand and truce talks overshadowed a large, unexpected drop in inventories. However, a “too far, too fast” scenario for falling prices created a key technical stop that led to buying interest through Friday.

The weekly high for WTI was $76.90/bbl on Monday and the low was $71.45 on Wednesday. Brent oil recorded a hi/lo range of $79.80/$75.65. And although both grades ended the week higher, they closed lower than last week. The WTI/Brent spread is now ($4.15/bbl.).

China, the largest crude importer, saw gasoline exports fall 35% last month due to falling refining margins, prompting the OPEC+ group to reconsider its plans to lift production cuts in the fall. Rising production in non-OPEC countries such as the US, Brazil and Guyana is also giving the cartel pause.

Standard Chartered is responding to these consumption fears by saying that global oil demand reached a record high of 103 million barrels per day in June. StanChart is forecasting similar consumption for the rest of the year. In addition, positive comments by Federal Reserve Chairman Powel at the annual meeting in Jackson Hole, Wyoming, are creating optimism about a rate cut in the near future. The resulting economic growth would boost energy demand in general. Stock markets reacted positively to the news and the price of crude oil recovered.

The Energy Information Administration’s Weekly Petroleum Status Report showed an unexpected decline in crude oil inventories. Refined product inventories also declined. The number of oil and gas drilling rigs in the U.S. fell by 1 to 585, 47 fewer than in the same period last year. However, oil production rose to 13.4 million barrels per day due to efficiency improvements in drilling and completions.

Refineries on the US West Coast had expected bitumen from Canada’s Trans Mountain Express pipeline to drive down commodity prices. Instead, most barrels have so far been on the Asian market. Once again, the rejection of the Keystone XL international border crossing permit casts a large shadow. Meanwhile, a possible rail strike in Canada could affect bitumen shipments from Alberta to the US, especially to the East Coast.

In addition to the positive comments from the Fed meeting, new home sales rose 10.6% in July to 739,000, versus a forecast total of 620,000. The optimism coming out of Jackson Hole has led to gains in all three major U.S. stock indices. The USD is at its lowest level in 18 months, which is also supporting crude oil prices.

WTI NYMEX futures for October 2024 are now the “prompt” month and prices are trading below the 8-day, 13-day and 21-day moving averages (MA) and remain well below the 200-day moving average. Wednesday’s low broke the lower Bollinger Band, which represents 2 standard deviations from the mean. As a result, buying has occurred. Volume is around the recent average of 270,000 as traders turn their focus to October. The Relative Strength Indicator (RSI) is neutral at 46. 30 or less is considered oversold, while 70 or more is considered overbought. Resistance is now at $75.00 (the 8-day moving average) with short-term support at $72.85.