ALERT: MARGIN RAISE, DEMAND CONCERNS PRESSURE OIL

PETROLEUM MARKET

The petroleum market experienced another limit move, yesterday, when gasoline prices traded own 25 cents a five minute timeout for oil, heating, and RBOB was instituted. Later in the day, margins were raised, again, on gasoline and heating oil. The move by the CME seems to have the intended effect of wringing out the most speculative interests. In early trading, crude has reached a low of 95.25. The IEA has added to the selling pressure with their latest report forecasting a drop in demand of 190k barrels per day for 2011 for the first time. It is the first serious acknowledgement of the damage high energy prices are inflicting upon the global economy. This should dispel the notion that the breaking point for consumers is another dollar or so per gallon of gasoline away. Economic data this morning was, however, somewhat supportive. Retail sales were up, PPI was stronger than expected, and jobless claim declined 44k but remain solidly above 400k. The warning signs of demand destruction have been creeping into the equation punctuated by the recent lackluster Q1 US GDP reading. If these data cause the inflation fears to subside, commodities should continue their price realignment, and the swiftness will  accelerate.
 
 
TECH TALK

Crude oil is approaching the lows from last Thursday's steep decline. The critical area of support is between 94.40-94.50. The area represents Thursday's low and several trend support lines (monthly, weekly) come into play in that area (94.44). A break of that support will likely see prices tumble back into the multi-month channel bounded by 88-93 per barrel. On the upside, $99 is resistance, but, if breached $100 will be retaken quickly. The daily ranges have been very wide and volume strong. The volatility looks to persist through the end of the week at least.
 
 
NATURAL GAS

Natural gas broke down along with the petroleum complex, yesterday, although a brief surge in buying clouded the picture. The selling has resumed, however, with prices trading to a session low of nearly 4.10. Inventory data later this morning should be supportive. The average injection forecast is 71, and we expect the reading to come in at 69 bcf. That is smallish for this time of year, but expecations for another record storage injection are still on track. The overall commodity cannot be escaped in this space. Heavy liquidation is being seen. The concerns over Mississippi River flooding cut both ways in terms of concerns over available supplies colliding with regional disruptions to the economy. Look for prices to continue to be pressured from macro issues. There is little in the way of cooling demand emerging, as well, for now. A trade down near $4.00 looks to be likely.
 
 
TECH TALK

A sell signal was generated by yesterday's "outside day" with a lower close. The 4.10 area is critical support now, a break of it argues for further downside test of the recent June contract low of 4.055. The slope of the price decline is quite steep and some bouts of corrective short-covering are likely. For the chart to turn positive, prices need to rise above the pivot of 4.23.

source: KilduffReport.Com