Commodities | Aug 09 2012
The positive non-farm payroll number (+167k) kicked in and optimism about the recovery was renewed, which backed up the recent draws in inventory we had be experiencing and which are also forecast to continue. Data from API suggested that inventories dropped a further 5.38 million barrels [two weeks ago] and on Thursday we get [last week's] DOE data where we are expecting draws will continue by 1.55 million [draws were 3.7m – Ed.] .
All told it appears that more Americans are choosing to go tramping around the country in cars rather than opting for expensive overseas vacations and this is helping to push crude higher. We expect that as this is a peak period for demand, the draws will continue. Backing up the optimism over the recovery and demand we have seen the Miami-based National Hurricane Centre reporting that Hurricane Ernesto is picking up strength and threatening the coasts of Mexico and Belize. It is not just the onslaught of Ernesto, the number two Hurricane for the season, that emphasises the threat of disruptions of production but the fact that we have one storm cell in the Pacific and two in the Atlantic that have the potential this week to turn into Hurricanes.
So whilst the market was focusing on the potential upgrades in the storms, news from Syria of an attack against the President al-Assad renewed geopolitical tensions in the Middle East. We have also heard that Syria’s PM Hijab has defected to the rebels. Whilst news on an escalation of violence remains current expect the premium in oil prices to resonate through the market.
We took a long position at US89.60 (WTI) and added to this position at US92.12. If we get a steep rejection of US95.00 we may be tempted to take profits.
Glad to be out of the natural gas trade. We have just registered a low of US2.80 and will look for signs that the US drought will continue. On this trade keep close to weather forecasts in the US as there is currently a strong correlation.
Chart Point
The market has traded through resistance at US93.50 mentioned last week and if we get a daily close above, we expect further gains. Momentum indicators look positive. Good support can now be found at US90.00, and resistance stands at US93.50.
We remain positive the complex.
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