Energy costs are falling on signs of weaker demand and increased supply.
Several negative headlines appeared before and after the Labor Day weekend. First, Chinese manufacturing activity slowed more than expected to its worst level in six months. Then Reuters reported that OPEC+ countries would let production increase as previously announced. The newswire separately noted that analysts lowered their targets for crude oil for the fourth straight month.
This week, the Institute for Supply Management and S&P Global reported weaker-than-expected manufacturing data for the U.S. Reuters noted that the Saudis may cut oil prices for Asian customers by $0.50 to $0.70 barrel. In related commodity stories, Chinese iron ore prices crashed and Goldman Sachs lowered its forecast for copper prices.
Those stories point to weaker demand in the world’s two largest economies — without any clear reduction in supply. Further pressure came on Tuesday after Libyan authorities indicated a recent production halt was being resolved in the North African country.
The developments also follow TradeStation’s decision to lower day-trading margin rates for popular energy futures. The change covered crude oil, heating oil and gasoline, plus their mini versions. Here’s a list of the symbols:
- Crude oil (@CL)
- E-mini crude oil (@QM)
- Heating oil (@HO)
- E-mini heating oil (@QH)
- RBOB gasoline (@RB)
- E-mini RBOB gasoline (@QU)
Gasoline’s ‘Historic Drop’
Speaking of gasoline, @RB declined 5.5 percent on Tuesday — its biggest drop since October.
It was a “truly historic post-Labor Day sell-off for gasoline futures,” according to Tom Kloza, who’s covered energy at Oil Price Information Service since 1980.
Chart watchers may focus on @RB’s current price around $1.97 because it’s near the low of December. A move under the level could be viewed as breaking support, with potential for greater downside.
@CL is also probing a potentially important level around $70, near the lows of early June and early August.
In another potentially negative sign, energy companies are down about 6 percent since the end of March. That makes them the worst-performing sector in the S&P 500, according to TradeStation data. It also lags a gain of more than 5 percent in the broader market over the same period.
Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement visit www.TradeStation.com/DisclosureFutures.
Margin trading involves risks, and it is important that you fully understand those risks before trading on margin. The Margin Disclosure Statement outlines many of those risks, including that you can lose more funds than you deposit in your margin account; your brokerage firm can force the sale of securities in your account; your brokerage firm can sell your securities without contacting you; and you are not entitled to an extension of time on a margin call. Review the Margin Disclosure Statement at www.TradeStation.com/DisclosureMargin.
