Oil Prices Erase Gains

Much of the $2-plus in value that West Texas Intermediate (WTI) and Brent crude oil futures each gained Tuesday disappeared during Wednesday’s trading.

Equity and commodity markets – including the petroleum sector – took a dramatic turn downward Wednesday when the 10-year U.S. Treasury Note yield fell below the two-year Treasury Note yield for the first time in 12 years.

“This action is viewed as a potential indicator for the risk of recession,” explained Steve Blair, senior account executive with the RCG Division of Marex Spectron. “Oil markets are also under pressure as economic data out of China and Germany missed expectations, giving further credence to thoughts of softening demand for oil.”

The September WTI contract price lost $1.87 during the midweek session, settling at $55.23 per barrel. The light crude marker peaked at $56.85 and bottomed out at $53.97.

“September WTI had rallied from a low of $51.94 last Thursday to a high of $57.47 yesterday after the President deferred the new trade tariffs that were scheduled to be implemented on September 1,” said Blair. “This put prices right near the major resistance at these levels.”

Daily and daily continuation charts provided by Blair’s firm put the WTI price levels into context.

“The realization this morning that 10-year Treasury yields had fallen below the two-year Treasury yields, and the subsequent realization that this could be a sign of recession, put intense pressure on the petroleum complex along with the other market signs of softer global demand for crude,” continued Blair. “Major support seen around the $53.59 level with further at $52.62 and then at $50.90. Major resistance seen at the recent $57.47 higher and then around $59.80.”

Brent crude for October delivery settled at $59.48 per barrel, reflecting a $1.82 loss.

“October Brent also fell prey to the same fundamental factors that affected WTI today and prices fell to near the $57.80 support level, seen on both the daily and daily continuation charts,” said Blair, adding that resistance starts at $59.45 and also appears at $61.56. “We are keeping an eye on the more macro weekly continuation chart as prices last week approached a major uptrend line before rallying.”

Blair noted that the major uptrend line for last week was seen at $54.70 and for this week is at $54.85.

Reformulated gasoline (RBOB) also finished lower. September RBOB shed six cents to end the day at $1.68 per gallon. Blair pointed out that it fell to a low of $1.6111 last week – near the $1.6126 support level – and penetrated a long-term uptrend line of support that appears on the daily RBOB chart.

“Yesterday prices had rebounded and moved back above the trend line, but today’s action has once again pushed prices back below,” Blair commented. “Further major support seen at the $1.5724 level. Resistance, based on today’s close, is now at $1.6923, which is just below the trend line.”

Posting the smallest loss Wednesday was Henry Hub natural gas. September gas futures fell by less than one-half of one cent to settle at $2.14.

“Natural gas continues to flounder as weather in the large consuming regions of the Midwest and Northeast continue to remain at normal temperatures, even with extreme temps continuing in Texas and other areas of the South,” said Blair. “High and record production levels and a weaker LNG export market continue to keep pressure on prices – especially as we are now in the middle of the last month of summer in many regions of the Lower 48.”

Referencing daily and weekly continuing charts, Blair said that major support at $2.077 and a close below that level could drive gas futures below the $2-mark. He added that major support levels are seen at $1.957 and $1.925 and resistance levels are seen at $2.176 and $2.228.

To contact the author, email mveazey@rigzone.com.