Crude Oil, Natural Gas Traders Worried About Demand, While Gold Specs Lift Bullish Bets

Rallies fizzled in the energy complex last week after demand concerns were raised in crude oil and natural gas, while gold traders sat tight while continuing to assess the impact of the Fed’s policy changes following last week’s announcements. The weakness in crude oil is not a major concern because supply is getting tighter, however, with the start of injection season just right around the corner, natural gas bulls may have fired their last shot early last week. In gold, the narrative is bullish –lower Treasurys, weaker Dollar. This may have encouraged professional buyers to re-enter the market on the long side after liquidating positions for the last three weeks.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures finished mixed last week with the U.S. market managing to eke out a small gain and the international market ending slightly lower, but the price action on Friday suggests there is room for further downside pressure. The markets were able to overtake a key technical level on their way to a 4-month high, mostly on the back of the OPEC-led supply cuts and talk of extending the plan to cut production, trim the global supply and stabilize prices. However, these gains were erased when concerns about demand were brought to the forefront on Friday.

Although buyers were able to produce a new multi-month high, WTI and Brent crude oil settled lower 3 out of five sessions. This suggests the selling may be getting stronger, or the buying weaker.

Fundamentally, creeping into the minds of traders were concerns over demand due to worries over the slowing U.S. and global economies. The Fed contributed to the worries over domestic demand when they slashed their growth forecast and hinted the economy wasn’t strong enough to withstand any more rate hikes this year.

Further concerns over demand were raised when reports showed manufacturers in Europe, Japan and the United States suffered in March as surveys showed trade tensions had impacted factory output.

May WTI crude oil settled the week at $59.04, up $0.22 or +0.37%.

Natural Gas

After a spike to the upside earlier in the week failed to attract enough speculative buyers to continue the move, natural gas futures tanked as traders started to price in weak demand over the near-term. NatGasWeather said, “A warm break is still expected across the Great Lakes and East” late in the upcoming week and into the weekend. Here the data has been “milder trending with highs of 60s to near 70 degrees, resulting in national demand dropping below normal.”

NatGasWeather went on to say, “It remains active across the western and central U.S. with areas of showers, but relatively mild with highs of 40s to 60s. The southern U.S. will be exceptionally comfortable into the foreseeable future with highs of upper 60s to 80s for very light demand.”

May natural gas settled the week at $2.767, down $0.035 or -1.25%.

Gold

Gold finished higher last week, but the response to the dovish Federal Reserve monetary policy decisions was weak. Gold also showed a disappointing response to the weak economic data from the Euro Zone on Friday that exacerbated fears of a global slowdown. The price action doesn’t suggest that sellers are stopping the market from rallying, but it could be indicating the lack of buyers.

At mid-week, gold received a boost after the Fed brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year. An Friday, gold was bid after economic surveys showed business across the Euro Zone performed much worse than in March as factory activity contracted at the fastest pace in nearly six years, hurt by a big drop in demand.

After weeks of liquidation, professional money managers may have started to return to the long-side of the gold market. According to the latest government data, gold speculators lifted their bullish bets after three down weeks.

For the week, June Comex gold finished at $1318.70, up $9.80 or +0.75%.