I guess we could have been more disappointed. Oh sure, in the aftermath of the ECB rate decision and the lack of definitive action from Mario Draghi, one might think that the market would get crushed. While the market did sell off, it really wasn’t as bad as one might think, especially after Draghi raised expectations so high. It seems that despite the disappointment, the markets wanted to believe that Draghi did not offer any instant gratification and his rhetoric seemed very similar to that of the Feared Reserve and that seems to suggest that we should just be patient because they are planning something big. Oh sure you have the credibility issue, but it is clear that despite the fact that Draghi did not announce any immediate action, he is saying stay tuned!
Today, traders will stay tuned to the monthly jobs report. With a recent surge by President Obama in the polls, this report is critical on a number of fronts. Of course for traders it will be critical for this now expected secret plan by the Fed and the ECB and perhaps China to jolt the global economy. A terrible jobs number will be a good for oil but by the end of the day, the market will believe once again the global central banks will be forced to act.
Another reason some traders may hesitate to be short is the tropical activity down south in the Atlantic Ocean. First of all you have Tropical Storm Ernesto which now looks like it is on track to hit the south tip of Cuba and possibly end up in the Gulf of Mexico. Behind Ernesto there is another large low pressure area that according to the National Hurricane center has a 10% chance of becoming a tropical storm in the next 24 hours. Add to that a disorganized cluster of storms right off of the tip of Florida that some traders are watching in case they become more organized.
The key here is whether or not these storms do any real damage. They already are slowing imports into the Gulf, which was a major reason we saw crude oil supply fall so dramatically in the Energy Information Agency weekly status report. Oh sure, even with the drawdown of historic proportions, supplies are above average but a well-placed storm or storms could drain Gulf Coast supply even more.
Natural gas gave it up with the biggest percentage drop in years. The market has been riding the thermometer and after a larger than expected injection and some forecasts that the heat wave is going to end, the focus came back to the fact that supply is 17.2% above the five year average. The Energy Information Agency reported that working gas in storage was 3,217 Bcf as of Friday, July 27, 2012, according to EIA estimates. This represents a net increase of 28 Bcf from the previous week. Stocks were 472 Bcf higher than last year at this time and 407 Bcf above the 5-year average of 2,810 Bcf. In the East Region, stocks were 148 Bcf above the 5-year average following net injections of 30 Bcf. Stocks in the Producing Region were 172 Bcf above the 5-year average of 941 Bcf after a net withdrawal of 6 Bcf. Stocks in the West Region were 87 Bcf above the 5-year average after a net addition of 4 Bcf. At 3,217 Bcf, total working gas is above the 5-year historical range.