Energy Update: Crude Rallies Despite Bearish Iran News…
As you may remember, Iran agreed to a historic nuclear deal with Western powers the weekend before last. In response to the surprising development, the price of West Texas Intermediate crude (WTI) immediately dropped from $95 to $92 a barrel.
But the selloff was short lived…
WTI is screaming higher in this week’s trading as investors return their focus to US supplies. While US crude inventories are still robust, a new pipeline is set to alter essential supply numbers.
You see, on January 3rd 2014, a new pipeline goes into service that will draw massive crude supplies out of Cushing, Oklahoma and towards Port Arthur, Texas. Since the WTI benchmark price is based off Cushing supply data, a large drawdown in that supply hub will help support prices going forward.
Speaking of prices, take a look at a chart of WTI…
As you can see, yesterday’s hefty $2.09 a barrel rally sent crude back above $96. But more importantly, the spot price broke above an important down trend line (blue line). With this important technical resistance area cleared, WTI will likely rise back to the $98 area.
However, with total US supplies sitting near record levels for this time of year, it’s hard to imagine WTI rising back to the $100 level or higher. That is, unless something happens in the Middle East to elevate the risk premium once again.
Now, as far as natural goes…
Old Man Winter’s early US arrival has the price of this weather dependent commodity at multi-month highs. In fact, natural gas tested $4.00 mmBtu in yesterday’s trading session.
See for yourself…
As you can see, it’s been a straight shot higher for natural gas ever since the middle of November. As you may be aware, colder than normal temperatures swept across the Northeast the last week of November.
And now another cold spell is expected to engulf the US…
As you can see from this 6-10 day outlook from the NOAA, another large swath of cold temperatures are set to sweep across the US in mid-December.
If this trend of consistent cold weather continues, we’ll likely see natural gas break above $4.00 by January.
Bottom line…
The bulls are coming out to play in the energy complex. Both crude and natural gas are exhibiting bullish momentum that will likely continue in coming weeks.
How can you capitalize on higher energy prices?
The US Oil Fund (USO) is a great way to get long exposure to the price of crude, while the US Natural Gas Fund (UNG) moves higher with the price of natural gas.
Until Next Time,
Justin Bennett
Category: Crude Oil, Energy, Natural Gas
