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All eyes on crude oil and natural gas

Fawad Razaqzada Fawad Razaqzada 07/10/2021
All eyes on crude oil and natural gas All eyes on crude oil and natural gas
All eyes on crude oil and natural gas Fawad Razaqzada
Russia’s offer to ease Europe’s energy crunch has been the biggest talking point in the markets today, as gas prices sold off. Russia wants to get the ball rolling on its controversial Nord Stream 2 natural gas pipeline, which according to Deputy Prime Minister Alexander Novak, would be one way to solve Europe’s energy crisis. Although it remains uncertain whether Russia will be granted the approval, investors know the pressure is growing on European leaders to do something about the surging energy prices – and fast.

Along with natural gas prices, both crude oil contracts sold off yesterday and although we saw further downside follow-through earlier in today’s session, oil prices have since bounced off their lows to turn flat. Natural gas prices remained lower on the day at the time of writing, but likewise off their lows. The key question is whether energy prices will head lower from here, or if this is just a pause before we see more gains.
 
Oil prices in the US reached their highest levels this week since November 2014 amid a tight market, after rising by about 50% this year alone. The fact that the OPEC+ decided not to hike output more than the 400K barrels per day as had been previously agreed, thus sticking to its pact for a gradual increase in oil output, sent prices further higher earlier this week.

But with prices so high and concerns about the economy and inflation on the rise, investors are wondering whether the growth in demand is going to fall back as we head towards year-end and into 2022. Signs that the global economy might be heading into stagflation, and currency crises ongoing in some emerging markets, certainly point to an uncertain demand outlook.
 
In fact, there was some hints of weaker demand for crude in the US oil inventories report that was published by the Department of Energy. The weekly report showed that oil inventories had risen by 2.3 million barrels last week, which was more than 0.8 million expected and marked the second consecutive weekly stockpiling. What’s more, stocks of gasoline also surged, which triggered concerns that perhaps demand has weakened. Oil prices came under further pressure yesterday as a result.

But so far, dips have been continually bought, and the rebound in oil prices from their earlier lows is yet another example of that trend. But whether that trend changes may depend, at least in part, on how the whole energy sector behaves in the next few weeks. The fact that natural gas and electricity prices have also surged higher recently has been part of the reason why oil prices rose so much. If those markets now start to ease back, then this should help reduce demand for crude oil correspondingly.
 
Short-term focused traders may start taking advantage of elevated prices now that we have seen some technical signs of weakness in both oil contracts.

Brent oil formed a bearish engulfing candle and has already broken the first support level at around $80.70, a level which may turn into resistance in the short-term outlook:

Brent oil

Brent oil needs to break its short-term bullish trend line around $79.00 to confirm prices have topped out, at least for now.
 
WTI shows a very similar picture in that it has formed a possible reversal signal with the creation of the large bearish engulfing candle, but it too needs confirmation with the rising trend line around $75.00 still intact:

WTI 
So, both oil contracts have shown tentative bearish signs, but it is a bit early to confirm whether prices have reversed or whether this is just a pause before we potentially see more gains.

Source for all charts: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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