Singapore: Crude oil, trading near highest levels in two years, is likely to break out toward $94 (Dh345) a barrel if prices hold above $87 support, according to Chart Partners Group Ltd.
Commodities like oil, gold and copper are showing bullish short-term trends going into January, even as they flirt with an "opposing, corrective cycle" in the longer term, said Thomas Schroeder, managing director at Chart Partners, a Bangkok-based technical research company.
The $87-a-barrel level is a pivot point and was the high for the year a few months ago, Schroeder said. Crude futures settled above $87 a barrel three times in November before rallying above $88 a barrel in December.
"It's popped above $87, it came back down and had a hard fall, went back above $87. It's having a hard time deciding whether it wants to hold that level," said Schroeder. "As long as the $87 support holds, I think we'll have some more significant highs in January to deal with."
Crude for January delivery gained as much as 48 cents, or 0.6 per cent to $88.50 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.36 a barrel at 8.46am Singapore time. Prior to November, futures last settled above $87 a barrel in October 2008.
Pending down-cycle
A rally for oil next month will be its "last run of strength before a pending down-cycle unfolds," according to Schroeder. Crude's chart is also showing bear divergence, where peaks in the Relative Strength Index and Moving Average Convergence/Divergence indicators aren't getting progressively higher, unlike oil's upward price trend, he said.
"Indicators haven't been confirming new highs, so that means crude's on unsure footing, the rally is on limited time," Schroeder said.
Hedge funds
gas bets, prices collide
Hedge funds raised bullish bets on natural gas to a four-month high just as weather warmed, pushing heating fuel to its biggest weekly decline since August.
The funds and other large speculators increased net-long positions, or wagers on rising prices, by 7 per cent in the seven days ended December 14 to the highest level since last August, according to the Commodity Futures Trading Commission's weekly Commitments of Traders report.
While forecasts for cold weather in the eastern and central US and dropping stockpiles drove futures up 4.9 per cent to $4.606 per million British thermal units on December 8, the outlook changed, causing prices to fall 8 per cent for the week. Natural gas may fall again this week as warmer weather limits demand, a Bloomberg News survey showed on Friday.
"It was risky to bet that the cold front would hold, and unfortunately for them, it didn't," said Hamza Khan, an analyst at the Schork Group Inc., a consulting company in Pennsylvania.
Natural gas for January delivery dropped to $4.066 per million Btu Friday on the New York Mercantile Exchange in the largest weekly decline since August 27.
The fuel is down 27 per cent this year as reserves climbed to a record high.
The US Energy Department reported December 16 that in the week ended December 10, stockpiles were at a surplus of 9.9 per cent to the five-year average from 9.8 per cent above a week earlier. About 52 per cent of US households use the fuel for heating, according to the department.
Below normal
On December 8, Commodity Weather Group in Bethesda, Maryland, forecast temperatures might be below normal across most of the Northeast, Midwest and Southeast through December 17 and in the Southeast and parts of the Midwest from December 18 to December 22. Futures fell to a two-week low on December 15 after the company predicted normal or warmer-than-normal weather for most of the Northeast and Midwest from December 25 to December 29.
Hedge funds bet that the cold would keep prices above $4.55, and perhaps spur a run to $5, said Brad Florer, a trader at Kottke Associates Inc., an energy trading firm in Louisville, Kentucky.
"The temperatures moderated, and that has put pressure back on the market," Florer said.
"Ultimately this market is still in a downtrend long term. We haven't been able to break out of it. Every time we try to force a move upward, it stalls."
Eight of 18 analysts, or 44 per cent, forecast that gas futures will decline on the New York Mercantile Exchange through this Thursday, the Bloomberg survey showed.
Seven, or 39 per cent, said futures will rise and three predicted that prices will stay the same. Last week, 55 per cent of participants said gas prices would increase.
Net-long positions held by managed money, including hedge funds, commodity pools and commodity-trading advisers, in futures and options combined in four natural-gas contracts increased by 7,051 futures equivalents to 107,618 in the week ended last Tuesday, the highest since the seven days ended August 6, the CFTC report showed.
The measure of net longs includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
"The real question now is whether the winter peak for pricing is behind us, and I wouldn't be surprised to find that it is," Khan said. If higher-than-normal temperatures persist, prices may not rise above $5, he said.
"We've had this stretch for a couple of weeks of pretty extreme cold," Florer said.
"It doesn't seem to matter as far as our gas storage situation, and that has definitely got to concern bulls in this market."