After a fairly lazy Monday in the markets, energy traders on Tuesday witnessed a shake-up as economic concerns in the United States spurred a significant liquidation in the liquids and natural gas futures. Despite storm uncertainty swirling in the Atlantic, August natural gas put in a low of $11.376 before closing at $11.477, down 48.2 cents from Monday’s finish.
August crude also crashed on the day and at one point was trading nearly $10/bbl off Monday’s finish. The prompt-month contract put in a low of $135.92/bbl before finishing out the regular session at $138.74/bbl, down $6.44 from Monday.
Traders were presented with the real possibility that a further slowing of the economy is in store after Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday that a turnaround is not in store anytime soon (see related story).
“We saw a massive liquidation by some very large entity in the energies on Tuesday. There were waves of selling in crude and natural gas,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “They were able to bring back a little bit in crude, but we still closed with significant drops. The real key is natural gas continues to take out uptrend lines while crude has failed to do so. If we drop below $135/bbl, there will be weeping and the gnashing of teeth. In natural gas we took out the short-term uptrend line last week and we came close to taking out the intermediate one at $11.470 on Tuesday. This leads me to believe that we still have some seriously lower numbers to investigate in natural gas.”
Despite the prediction, Kennedy noted that all is not quiet on the storm front, which could delay any further price erosion. “There are two waves out in the Atlantic that have forecasters taking notice,” he said. “We are definitely moving into the more active part of the hurricane season, so we’ll have to monitor their path and direction closely.”
Not all forecasters are crying “wolf” just yet. Forecasters with AccuWeather.com noted that Tropical Storm Bertha is currently moving away from Bermuda and farther away from the United States and that the second disturbance in the Atlantic is having a little trouble getting its act together.
“The tropical low in the Atlantic that AccuWeather.com has been tracking over the past few days has remained disorganized thanks to light, shearing winds,” said Brett Anderson, senior meteorologist with AccuWeather.com. “The system is tracking westward and is expected to continue in this direction over the next several days. The shear will probably continue over the system for the next day or so, but as it nears the Caribbean conditions could become more conducive to development.”
Some top traders see the market struggling to gain upside momentum in the short term. “Although the market has generally marked time this week in the process of digesting last week’s sharp losses, price action has had a heavy feel,” Jim Ritterbusch of Ritterbusch and Associates said Tuesday morning. He added that July temperature patterns are becoming “much milder than most observers had forecasted at the start of the month while the storm threat to Gulf Coast production infrastructure has been negligible.”
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