ENERGY PRICES WERE WEAK LAST WEEK… liquids markets in London and New York sank deeper into the 50/62% retracements and natural gas in New York stalled again. Of note, the heating oil market in New York actually closed below its respective area of support.
Less bad news… more bad action: Oil markets fell off of the proverbial cliff last week. Now, bulls are holding on for dear life. It couldn’t happen to a nicer lot.
On Friday spot crude oil in New York closed below $60 to finish a week for the first time since May 15th, heating oil closed with a $1.5-handle for the first time since May 22nd and gasoline with a $1.6-handle since May 15th. Over in London spot crude oil dipped below $60, but bulls managed a 60.52 close. Nevertheless, that was the lowest close since May 15th. Meantime, natural gas bulls in New York were once again dead-on-arrival last week.
So now the question holds, was last week’s downdraft the beginning of the end to the rally? To answer this question analysts at are looking for two tells. First and foremost we have the ongoing issue of good news (bullish headlines)…
- Extant fallout from the Iranian elections
- Stepped up civil strife in Nigeria
- U.S. dollar weakness
- Passage of H.R. 2454
- Renewed tension between Russia and Georgia.
… and bad action (falling prices). That is to say, the bulls have been afforded numerous psychological opportunities to perpetuate the upward trend. Yet, momentum stalled at the end of June and then tanked last week. Most tellingly, the market failed to respond to last weeks jobs report.
When the report was released at 8:30am, our initial thought was … this was the exact catalyst the bulls were looking for. Instead, markets in London and New York peaked 15 minutes later and have been moving lower ever since.
The second tell we are most interested in are the 50/62% retracement areas. These are areas that often provide reliable technical support/resistance levels following reversals in significant trends. The current levels (based on a ratio scale) are such for the following August liquids contracts…
- WTI (NYMEX) 61.25 to 58.59
- Brent (ICE) 60.99 to 58.36
- RBOB (NYMEX) 169.56 to 161.50
- Heating Oil (NYMEX) 160.96 to 154.51
Note that the NYMEX heating oil contract finished last week below its respective 62%. The other three contracts are flirting with theirs. Therefore, as we started saying in last week’s issues of … the future is now for the bulls.
We think the sell off up until this point was the easy part. This is the part of the bubble that the bulls did to themselves. Thus, if the bulls are going to put up a defense then it is going to be here. If they succeed, then we saddle up for another run at $75. If they fail, then the table is set for a flush towards the $50 critical point of reference.
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Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.