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Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

By , Currency Analyst
09 May 2014 07:43 GMT

Talking Points

  • Crude oil traders nervous near key level as supply picture remains bearish
  • Precious metals exposed to easing Ukrainian concerns
  • Natural gas prices plummet by most since February on storage figures

Crude oil pulled back to the $100 a barrel handle alongside weakness in US equity benchmarks overnight, while natural gas prices plunged by the most since February on an upside surprise to supply figures. Broad-based risk aversion may yet spill over into further declines for the energy commodities, with the overall supply picture remaining bearish for crude oil in particular. Meanwhile, a relatively light economic docket next week may afford the US Dollar some breathing room, which in turn could leave gold and silver vulnerable to further falls as traders continue to unwind fear-driven positioning built up on geopolitical tensions.

WTI Supply Picture Remains Bearish

The Department of Energy (DOE) reported crude oil inventories fell for the first time in over a month this week. However, despite the drawdown, the overall supply picture casts a bearish outlook on crude oil prices. The continued shift in stock from Cushing to the Gulf Coast in particular highlights a potential glut that the refineries may struggle to mop-up. This may prompt crude traders to question the potential for a recovery in prices, and lead to an unwinding of near-record net long positioning.

Also in the energy commodities space; a higher-than-anticipated reading for natural gas storage as reported by the DOE in US trading overnight led to an acceleration of earlier declines. Prices plummeted by more than 3.5 percent to finish the session at the lowest level in three weeks. However, it may be too soon to suggest a bearish supply picture for natural gas, given the storage figures likely reflect a seasonal component (see below).

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Precious Metals Traders Look Past Ukrainian Conflict

As noted in recent commodities report, the precious metals remain exposed to ebbing safe-haven demand as geopolitical tensions ease. While the Ukrainian turmoil shows little signs of resolution at this stage, the most recent developments have failed to elicit the necessary degree of investor unease to rally gold and silver.

Further, the possibility of sanctions on Russian commodity exports looks increasingly unlikely, as the West refrains from further action to deter President Putin. This may ease earlier concerns over potential supply constraints of energy commodities from Russia, which is the source of roughly one third of Western Europe’s imports of oil and natural gas.

  • China Data Appeases Investors
  • Copper was off to a shaky start this week as investors weighed the prospect of another round of disappointing Chinese economic figures to put pressure on the base metal. However, a better-than-anticipated trade balance figure from the Asian giant yesterday has likely put some of those concerns at ease. Next week’s China retail sales data will headline the calendar as a potential driver for copper prices. A miss from the leading indicator of economic activity may yet wake the copper bears out of their slumber.

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

CRUDE OIL TECHNICAL ANALYSIS

Crude oil has broken below trendline support following the emergence of an Evening Star formation on the daily. Alongside building downside momentum (reflected by the rate of change indicator) and a move below the 20 SMA a bearish technical bias is offered. However, the daily close above the psychologically significant $100.00 handle suggests the potential for a short-term recovery which precludes new short positions at this stage. Sellers are likely to re-emerge at the 102.30 level of resistance.

Crude Oil: Need Break Below $100 For New Shorts

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold has pulled back to retest its descending trendline on the daily. As is often the case, a retest will help confirm whether prices may continue in the initial breakout direction. Buyers are also likely to emerge at the $1,277 mark, which has acted to support prices for the past month. Of additional consideration is the ATR reflecting low levels of volatility which generally suits range-trading.

The DailyFX Speculative Sentiment Index suggests a bearish bias for gold based on trader positioning.

Gold: Drops Below $1,305 To Retest Trendline

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

The Morning Star pattern on the daily chart has failed to stir the silver bulls as prices retreat back towards the all-important $19.00 handle. The pullback has negated earlier indications of a potential uptrend emerging on the daily which precludes a bullish technical bias at this stage.

Silver: $19.00 Handle Back On The Cards

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper is heading back to test the descending trendline on the daily, which may act to cap gains for the base metal. Sellers are also likely to emerge near the $3.085 mark, which may afford new short positions with a target offered by April low at $2.980.

Copper: Test Of Descending Trendline Looms

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium has tumbled from its 2014 high in recent trading. The Doji candlestick formation on the daily helped indicate the bulls had lost their grip on prices near the critical $815.0 handle. Given the precious metal remains in an ascending trend channel new short positions may be better-afforded on a break below trendline support.

Palladium: Prices Collapse As Bulls Lose Momentum

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

The formation of an Evening Star pattern near trendline resistance warns of a further pullback for platinum. A daily close below nearby support at $1,427 would be seen as an opportunity to enter new sell trades. A potential target is presented by the notable support level at $1,392.

Platinum: Bearish Signal Awaits Confirmation Near Key Support

Natural Gas Plummets, WTI Traders Nervous Near $100 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

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09 May 2014 07:43 GMT