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Crude oil looks to OPEC+ meeting for cues; is natural gas resuming its downtrend?


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Crude oil is holding above tough support, keeping alive the capitulation view; natural gas has fallen sharply, but the downside could be cushioned and what are the key levels to watch?

 

original-size.webpSource: Bloomberg

 

 

 Manish Jaradi | IG Analyst, Singapore | Publication date: Monday 29 May 2023 

Crude oil: Boxed in a range

Crude oil recouped some of last week’s losses as investors cheered a weekend deal in Washington to raise the government’s debt ceiling, potentially averting a disruptive government default.

Oil has managed to hold recover despite Russia’s Deputy Prime Minister Alexander Novak’s comments late last week that OPEC+ wasn’t likely to take further measures to change production levels at its meeting on June 4.

This followed Saudi Energy Minister Price Abdulaziz bin Salman warning that speculators should ‘watch out’ for pain – a sign that the group was preparing to cut output.

Crude oil monthly chart

 

original-size.webpSource: TradingView

Still, the upside in oil could be capped as the US Federal Reserve is expected to hike interest rates further at its June meeting and demand concerns given the uneven post-Covid recovery in China.

The market is pricing in a 60% chance of a 25-basis-point Fed rate hike on June 14 Vs a 17% chance a week ago and see no rate cuts until the end of the year.

Crude oil daily chart

 

original-size.webpSource: TradingView

On technical charts, crude oil’s hold above 64.00 could be a sign that oil may have capitulated following a multi-month decline.

However, there are no signs of a reversal of the downtrend yet. In this regard, oil would need to break above the April high of 83.50 for the downward pressure to fade. Until then, the path of least resistance is sideways to down.

Natural gas: Down but not out

Natural gas prices dropped sharply on Friday, before recovering slightly on Monday morning in Asia, weighed by milder US weather and a rebound in Canadian natural gas exports to the US.

Natural gas daily chart

original-size.webpSource: TradingView

Reports suggest the weather in the Lower 48 states would switch from cooler than normal From May 26-29 to mostly near normal from May 30 - June 10. Furthermore, earlier this month, wildfires forced Canadian producers to cut natural gas exports to the US.

However, last week, exports appear to be recovering to levels seen before the wildfires.

Still, the downside in natural gas prices could be limited by declining drilling activity on oversupply conditions and tighter credit conditions.

On technical charts, so long as natural gas stays above the February low of 1.97, some more upside can be expected, potentially toward the March high of 3.03.

Natural gas monthly chart

 

original-size.webpSource: TradingView

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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