Ten months ago we looked at the charts of four energy futures markets, rather reluctantly as I recall, because they were really neither key nor very interesting; that was the case then and remains so today. Not cheap or horribly expensive, dull rather than flatlining, and not at the epicentre of financial markets' concern. Sometimes that's a good place to be.
Focusing on Brent crude prices, which have traded around a $2.00 premium to New York delivery, both volume and open interest are close to the highest on record. This is odd because price action, while going according to plan, is even more subdued than we had thought. This has postponed, but not changed, our forecast. We feel prices have topped out around the $58.00 area - taking the best part of four months to do so. Now expect a drift down to $40.00, again slowly, with a potential brief dip to $34.00.
Last year's surprise for us was natural gas which, despite US producers turning on the taps again, rallied quite a bit more than we had allowed for. It did eventually peak at the end of last year at the psychological and secular resistance area at $4.00 per million British thermal units (MMBTUs). Chances are that for the rest of this year it's unlikely to rally through $3.50, but instead drift slowly towards $2.50 and then to $2.00.
Wholesale unleaded gasoline futures prices, felt most keenly by everyman, moved broadly sideways for the past 12 months. However, in California, which boasts America's most expensive pump prices, they have risen over this period from $2.50 per gallon to an average of $3.00 today. This hurts, especially as substitution and thrift are often impossible; it means other expenditure must be cut. The sensible technical forecast with this chart is to plump for more of the same - a random walk between $1.30 and $1.70 for another few months. Generally, though, the upside is more vulnerable than the downside, with a squeeze to $2.20-$2.50 something we might have to suffer through.
Heating oil futures, traded on the New York Mercantile Exchange, also rallied steadily all last year, keeping the ratio to Nymex crude at about 0.76. It has retreated quite sharply from $1.76 this quarter, suggesting an interim high is in place. Therefore this is another contract that might drift lower, probably to $1.30 and maybe $1.25. However, the more important feature of this chart is that this market has a secular base, and a level that it is very unlikely to drop below, at the psychological $1.00 per gallon.
My forecasts might be boring, but I think they are realistic and I see no point trying to hype up market moves merely to make headlines. Exporters will no doubt moan, but perhaps it's time for them to realise that the world is no longer willing to be held to ransom by oil-rich states.
Charts for this piece: Brent crude, Natural Gas, Unleaded Gasoline, Heating Oil.
