Crude markets appear eager to rally

October 1, 2015 02:09 PM

The price discovery across the futures and options market landscape is, for the most part, all about positioning for the Bureau of Labor and Statistics (BLS) headline jobs report due out tomorrow morning at 7:30 a.m. CST. The expectation is for 205,000 new jobs with static rate of 5.1%.

For the most part, the employment data earlier hits week would indicate that the expectation is probably a fair assessment though these measures (ADP, Challenger layoffs, weekly claims, etc.) can be very unreliable in their ability to predict the BLS data. For at least the morning tomorrow you can throw out much of your technical data and fundamental analysis until after the number comes out. In other words, no information prior to the data wood most likely have any price action staying power should the number support an egregious move in the other direction. 

With that being said we can look toward some of the key markets and attempt to be predictive of the price action for any given set of circumstances that could arise out of the jobs data. For example, the crude oil market appears to be wanting to trade higher based on the fundamentals at these levels (reduced U.S. rig counts, jet fuel and gasoline demand soaring at decade long highs, less raw material exports out of the Suadis, etc). When the equity markets are down then the crude does falter but only slightly yet when the equities have strong days the crude seems to embrace that scenario more significantly through aggressively higher price discovery. 

Therefore, it seems logical to deduce that the lack of demand based on global slowing appears to be priced into the crude market even if it has yet to be fully priced into the equity markets. So, for the WTI contract and its relationship to the jobs data, one could easily take the viewpoint that a bullish number will have a greater positive effect on the price than would a bearish reading.

For the natural gas there is a bit of more unique phenomenon occurring as this particular commodity marches to a different beat than the petroleum markets. Weather is a key factor in natural gas as it is primarily used for temperature regulation. The hurricane season can have a similar effect on both natural gas and the WTI markets as we look at the key excavation and refining locations that are particularly in harm’s way, yet that is where the similarities end. Currently the natural gas is trading at a recent 5 year low just breaching 2.50 today. 

Inventories were actually very slightly bullish but the market is trading lower nonetheless. Part of this is attributable to traders pushing the limits to see just how weak the commodity can get with some participants calling for the 2010 lows in the 1.80 handle to be tested. 

Additionally, the forecast of a ‘once in quarter century’ el Niño hot streak through November in the Western states is putting pressure on the already cheap commodity. Traditionally, there is very little direct correlation between the BLS data and natural gas price discovery, particularly from a knee jerk perspective.  At these levels it is hard ot not at least start taking some nibbles to long side as the price discovery searches for the bottom. 

About the Author

Tory Enerson is a senior market strategist with the Zaner Group in Chicago, an Independent Introducing Broker. He has been in the futures industry for over 20 years. Beginning his career at the CBOT in 1990, Enerson worked his way up through the industry when he became a member of the CBOT in 1998 and traded for over a decade before beginning to work with clients as a market strategist.