Despite a larger than expected draw in crude, prices moved sharply lower as WTI fell 1.8%. Profit taking in the arb moved crude lower from the outset of trading. The decline was exacerbated by weakness in the equity markets, fueled by poorer than expected earnings reports.

In Egypt, the military chief called for demonstrators to support the military’s right to confront the backers of former President, Morsi. The former President’s supporters are calling the tactic a prelude to civil war. Although Egypt does not have large energy supplies, it is a conduit for crude oil transportation through the Suez Canal and the Sumed Pipeline. While traders should keep an eye on the situation, present market dynamics are more focused on spread relationships and the rebalancing between WTI and Brent.

Weakness in the oil market was also precipitated by poor economic data out of China. The flash PMI fell to 47.7 from 48.2.

The natural gas rig that sprang a leak in the Gulf of Mexico yesterday, imploded on Wednesday; the gas continues to leak from the shallow water well. This is the second well in the Gulf that has had problems this month. There was limited price action in natural gas on that news. Traders wait for inventory data due on Thursday. The outlook is for an injection of 47 bcf.

Storm Dorian was upgraded to a tropical storm earlier in the day. Trajectories suggest a brush of the East coast, but we will wait to see if it makes the anticipated turn.

WTI

 Daily Moving Averages: 21, 55, & 100: 103.09, 98.28, 95.76

Weekly Moving Averages: 21, 55, & 100: 95.58, 93.08, 94.02

We noted in Wednesday’s report that Sept would encounter resistance at 107.60 and that it would normally have another leg to the downside.

• Although this occurred, we were not forceful enough in our outlook.
• We have noted a completed wave structure at 108.93 and should have been far more bearish than we were.
• Nevertheless, this remains a bearish pattern. It is one that demands to sell the rally.
• There is resistance at 105.80 to 106.00. The minor pivot is 106.25.
• We are a seller at the 105.85 level. The protective stop placed above 106.25.
• Sept is seen testing the key downside pivot of 104.31 Thursday. While this is a continuation chart pivot it will also affect Sept. The key downside pivot for the Sept calendar chart is 103.70.
• This is a critical level for the bulls to protect. It was the launching point for the move up to 108.93.
• The key upside pivot that dismantles the bearish outlook is a break of 107.55.

BRENT

Daily Moving Averages: 21, 55, & 100: 106.69, 104.63, 105.10

Weekly Moving Averages: 21, 55, & 100: 105.37, 108.88, 110.14

The chart below is labeled as a completed large degree A-B-C correction.

• This means that it is likely another leg to the downside will develop for Thursday.
• Although the fun and games in the September arb has steadied Sept somewhat, it is probable that a test of 106.20 is seen.
• But with a break of this pivot Sept will be slapped lower.
• This will open up support at 105.35 to 105.10.
• The latter level represents the 100 DMA on the continuation chart.
• We are a seller of the rally.
• This will be at the 107.50 level. The protective stop placed above 107.80.
• The key upside pivot is 108.65.
• The key downside pivot is a daily settle below 104.85.

WTI-BRENT

Daily Moving Averages: 21, 55, & 100: -1.12, -1.72, -2.76

Weekly Moving Averages: 55, 100, & 200: -6.70, -9.87, –15.36

We were wrong in our assessment of strength for this market Wednesday.

•  Although September did in fact nuzzle, -.60 it was not above to break though.
• It was an ominous sign for the bulls. by not breaking the pivot the potential for an equal to new high was removed.
• We had thought it would give it a shot, but the market was unimpressed by the draw in inventories even with a paring of Cushing barrels.
• But it has been the managed funds that rode this bull higher and once the herd decides to get out it is every bull for himself.
• There appears to be more downside ahead for those trod upon Wednesday.
• The construction of the pattern is such that a drop to -2.50 to -2.60 is probable.
• This model is based on Sept not violating -1.10 before moving lower.
• We are a seller of the rally. This is at the -1.50 level with a protective stop above -1.20.
• A fifteen minute settle below  -2.00 will lead September to the above mentioned objective.
• The key upside pivot to the intraday chart is -.60.

RBOB

Daily Moving Averages: 21, 55, & 100: 2.9491, 2.8812, 2.9140

Weekly Moving Averages: 21, 55, & 100: 2.9315, 2.8985, 2.8816

As we have labeled below, August completed a significant wave to the upside late last week.

• Although Wednesday proved to be an inside day, August failed to better the minor pivot at 3.0850.
• While this pivot remains as Thursday’s minor hinge, a break above it will find resistance at 3.1050 to 3.11.
• We are a seller of the rally. This will be at the 3.0650 level with a protective stop above 3.0750.
• This is an aggressive bear approach to Thursday for August.
• August has a 3.0050 to 3.00 objective with a break of 3.02.
• Key ratio support below 3.00 is found at 2.968 to 2.9750.
• The fall in inventories helped stabilize this market relative to WTI.
• DOE’s report showed a drop of 1.4 MB while a build was anticipated.
• Despite this positive development weakness in the equity picture (key reversal) and probably more selling in WTI will keep this market under pressure as well.
• The stochastic measure at the chart’s bottom shows the overbought nature of the rally and that there is likely to be more softness to come.

ETHANOL

Daily Moving Averages: 21, 55, & 100: 2.441, 2.528, 2.516

Weekly Moving Averages: 21, 55, & 100: 2.519, 2.455, 2.400

We have been steadfastly bearish since this market broke below 2.50.

• We have been looking for a test of the key support at 2.305.
• Although that is still operative, there will be minor support in front of that key level at 2.325 to 2.32.
• since there is no intervening support between that mark and the 2.350 level it is difficult to post a pivot.
• Suffice it to say that 2.305 is the key.
• Below this level on a daily settlement basis will have the bulls herded to the slaughter house.
• This will give the bears a chance for a look at the 2.22 to 2.20 zone.
• We are a seller of the rally.

DISTILLATE

Daily Moving Averages: 21, 55, & 100: 2.9860, 2.9286, 2.9175

Weekly Moving Averages: 21, 55, & 100: 2.9217, 3.0027, 3.0001

Notwithstanding better than expected inventories, August succumbed to weakness.

• Although it appears that August did complete a minor leg to the downside, the larger degree pattern is negative.
• This will  likely mean there will be a bounce from the 3.0250 area that will find resistance at 3.0500 to 3.0550. The minor upside pivot is 3.0600.
• The key upside pivot to the intraday chart is 3.0785.
• It is with a break of the latter pivot that August shows enough strength to test the recent high.
• Nevertheless as long as WTI is showing weakness as is the equity market, it will be difficult for August to sustain a rally.
• We are looking to sell the rally.
• This will be at the 3.0550 level. The stop placed above 3.06.
• The downside pivot is 3.02.
• Falling below this mark on a five-minute basis will signal a drop to 2.99 to 2.9850.

NATGAS

Daily Moving Averages: 21, 55, & 100: 3.670, 3.851, 3.917

Weekly Moving Averages: 21, 55, & 100: 3.904, 3.494, 3.235

It was an upgrade in the status of tropical storm Dorian that gave August a boost to the high of the day.

• There is a ginormous head and shoulders top formation on the hourly chart for Thursday.
• Bulls are praying for a smaller than expected injection number since the heat wave was last week.
• The expectations are for a build of 47 BCF.
• We are more disposed to the bearish side of the market, but understand that a rise before more downside may occur.
• Bulls have their key to profits at 3.78.
• This mark needs to be bettered by a five-minute settle for a rise to grab hold.
• If that occurs the immediate response will be a jump to the key upside pivot to the short-term picture at 3.835.
• The bears have their pivot at 3.585.
• It is with a penetration of this level that the key downside pivot is in jeopardy of being broken.
• A daily settle below 3.58 will eye 3.42 to 3.405.
• It is make or break time for the bulls. Cooling degree days will begin to fall with the arrival of September.
• This may set up a test of the 3.00 area for the shoulder months.