Energy Prices Tumble

Daily Analysis - 24/02/2015

Following a Modest Bounce, Oil Prices Have Resumed Their Decline

The technical rebound in oil prices looks to have come to an abrupt conclusion as supply continues to vastly outpace market demand. Prices look content to consolidate in the near-term, awaiting more data.

Crude Bounce Ends

After bouncing from multi-year lows, erasing some losses, oil prices have resumed their plunge lower as the end of the technical rebound draws to a close. The West Texas Intermediate crude oil blend traded below recent trough, trending under an important support level at $49.75. Any move below the next relevant level at $48.08 per barrel could be the motive for prices to slip even further to the downside and resume the prevailing medium-term downtrend. Supply in the oil market continues to grow as a Libyan pipeline comes back online and American producers pump at breakneck speed to meet debt repayments for shale projects. Not helping matters is the move by the Saudis to keep cutting prices in an effort to maintain market share. In any event, the squeeze higher in prices looks to have found its peak as analysts reposition estimates for prolonged weakness.

Gold Prices Slide

The U.S. Department of Justice has just opened an investigation into gold price manipulation by major banks as the Commodities Futures Trading Commission probes precious metals giants in response to allegations of price-fixing. The investigation will be looking at the activities of major global financial institutions including Bank of Nova Scotia, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, and JPMorgan. Claims of manipulation have mostly recently been fodder for conspiracy theorists, but nevertheless proves that the regulatory agencies are taking these assertions very seriously by opening investigations into AM and PM gold fixings. Meanwhile, gold prices rebounded from yesterday’s session lows after the U.S. dollar sold off modestly. Strong support remains at $1188 per troy ounce with any move below likely to see prices march towards $1150.

Greek Reforms

Although the deal was reached on Friday between the Eurogroup and Greece, terms of the deal have yet to be forthcoming as market participants await more details on the Greek reform proposals. There seems to be broad confusion as to whether the proposals were submitted before the midnight deadline, but conflicting reports show that lawmakers are racing to gain approval from national parliaments to bring the compromise to closure. Firebrand German Finance Minister Wolfgang Schaeuble has the difficult task of convincing German lawmakers that another round of taxpayer funded relief for the Greeks is warranted after years of railing against the spending and tax collection practices of the Greek Government. EURUSD continues to trend within a horizontal range ahead of today’s testimony from U.S. Federal Reserve Chairwoman Janet Yellen. Any hints towards interest rate policy could be the impetus for a breakout from the multi-week consolidation.

Natural Gas Equidistant Channel Technical Pattern

Just like the oversupply conditions prevalent in the crude oil market, natural gas is plagued by overwhelming output without sufficient demand to support prices. Even though unseasonably cold weather conditions in the United States are likely seeing increased demand for heating, production remains near highs, placing increased downward pressure on prices. Although prices have rebounded modestly as the energy rig count in the United States tumbled, downside forces on prices will likely resume in line with any drop in oil prices. The upward trending equidistant channel so far remains intact, with trend following strategies suggested via long positions at the lower channel line to be closed at the top of the channel. Any move outside of the channel should be treated as a breakout trade.