Weather Not a Factor in Energy Futures This Week

Includes: DBA, DBC, USO
by: Michael Ferrari

A combination of cooler weather in the central and eastern combined with weaker fundamentals including overall demand destruction continue to exert downward pressure on energy prices last week (September Crude/NG), and this bearish market sentiment carried over into Monday and Tuesday’s trading on NYMEX, before the inventory report moved the market back up a bit on Wednesday. 

Per last week’s weekly discussion, most of the heat was restricted to the west/southwest states, and population centers from the midwest through the east were spared any weather that would have caused CDDs to spike.

Other fundamental news has been at least as important as the cooler weather, including the stronger USD which is at a 5 yr high vs. the Euro, more evidence for weakening demand from China, and the continuing reduction in overall US demand. Consumers are responding to the higher CPI (energy/food inclusive), and the July and August figures should reflect this change in behavior.

The June 2008 Energy expenditure index was +6.6% higher than May, with energy commodities increasing 34.7% for the first half of the year. July CPI statistics will be released on August 14th. The current week’s weather should be another period with generally light electricity demand, as the cooler pattern is the dominant feature and evening temperatures are well below normal across many demand centers.

Even hurricane activity is secondary at the moment; last week’s Tropical Storm Edouard cut a path right through some oil fields off of eastern TX, and the market reaction was muted.

This is quite a contrast from last year when even the sight of a potentially threatening system lead to high volatility. The tropics have a couple of systems that are currently being monitored but there does not appear to be a high probability for development (the GFS model has picked up on a potential pattern that could lead a storm right into the MidAtlantic in a couple of weeks).

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