Crude oil futures dipped lower on Wednesday and continue to trade lower on Thursday morning as overflow from Tropical Storm Harvey continued to knock down US refinery capacity
CRUDE OIL – Crude oil futures dipped lower on Wednesday and continue to trade lower on Thursday morning as overflow from Tropical Storm Harvey continued to knock down US refinery capacity. It was the ninth-straight week of waning crude inventories. With almost a quarter of U.S. refineries shut down due to Hurricane Harvey, U.S. West Texas Intermediate and international-benchmark Brent crude oil prices retreated again on Wednesday while U.S. gasoline prices rose to $2.00 per gallon for the first time since 2015. According to industry estimates, at least 4.4 million barrels per day (bpd) of refining capacity was offline, or almost a quarter of total U.S. capacity. Prices continue to decline as U.S. crude inventories continued to increase at a rate of about 1.4 million bpd. At the same time, a gasoline supply squeeze triggered a jump in gasoline prices. Traders also reacted to reports that it could take several months before all production could be brought back online.
GOLD – Gold prices fell from an 11-month high earlier in the week to close lower on Wednesday. Solid U.S. economic data drove up U.S. Treasury yields on increased odds for a December rate hike by the Fed. This helped make the U.S. Dollar a more attractive investment and encouraged investors to take profits in the dollar-denominated gold futures contract. December Comex Gold settled at $1314.10, down $4.80 or -0.36%. The price action was primary driven by stronger-than-expected U.S. economic data. A Commerce Department report said on Wednesday that the second estimate of U.S. Gross Domestic Product showed that the economy grew at an annual 3.0 percent pace in the second quarter, the fastest in more than two years. Traders were looking for an increase of 2.7 percent, up from 2.6 percent. The ADP National Employment Report showed U.S. private-sector employers hired 237,000 workers in August for the biggest monthly increase in five months, driving expectations for a solid U.S. August Non-Farm Payrolls figure. In the wake of the solid economic data, futures market traders increased the chances of a Fed rate hike before the end of the year. The CMEGroup’s Fed Watch tool showed the chances of a Fed rate hike in December rose from 34 percent earlier in the week to 41 percent.
NATURAL GAS – Natural gas futures closed lower on Wednesday as investors continued to digest the impact of Hurricane Harvey on the industry. At this time, the primary concern for traders is production. This is a potentially bullish situation because it deals with the supply side of the equation. The issue with crude oil, for example, is with demand. With the refineries shutdown in Texas and no timetable set for their return, it’s hard to predict the direction for natural gas. All we can do is watch the charts. News is scarce and it seems like nobody is talking. Traders seem to be adopting a “when in doubt, stay out” mentality. Since the data is old and was collected before Hurricane Harvey, I don’t expect the report to have much of an impact on prices. Without knowing the extent of the flood damage on infrastructure or a timetable for the return of the refineries, we think natural gas traders will continue to take a “wait and see” approach. I see very little speculation at this time since no one is sure which direction to play.
COPPER – December Comex High Grade Copper futures treaded water most of the session on Wednesday before closing lower. However, the market remained just below its multi-year high set the day before. Some traders blamed end of the month position-squaring for the weakness, but a surge in the U.S. Dollar may have been behind the selling pressure. The rebound in the U.S. Dollar was fueled by solid economic data which drove up the odds of a Fed rate hike later in the year. Both the quarterly Preliminary GDP and the ADP private sector jobs report beat the estimates. December Comex High Grade Copper futures continued to make multi-year highs on Monday, backed by expectations of increased demand from China, and boosted by a weaker U.S. Dollar which is also expected to drive up foreign demand for dollar-denominated copper. A jump in gold prices also underpinned demand for the industrial metal. The hedge funds are driving up prices because they like trends and they like momentum. They also follow the Herd Theory so when one stops buying, they’ll all stop buying and when one starts selling, they’ll all start selling. This is why markets come down faster than they go up.
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