ALERT: EUROPEAN DEBT CRISIS WILL NOT GO AWAY.
 
PETROLEUM MARKET

Markets around the world are operating right now, just as they are supposed to. The European debt crisis is rearing its ugly head again as Greek debt is downgraded to junk. Call it whatever you like, but they will default. Then the choice will be either the strong nations restructure their debt or the EU implodes. This in turn is forcing funds to flow to US Treasuries, creating demand for the dollar and Swiss Franc at the expense of the euro which has already posted new lows today, and pushing commodity prices lower. In the final analysis this feeds into the idea that the recovery is growing more and more fragile and will have a negative effect on demand for strategic commodities. This started Friday with the Bundesbank report that said the German economic recovery will lose momentum into the year. Chinese manufacturing activity also slowed in May which further fueling fears over the slowing global recovery. This is why we still hold that oil, at the very least, will trend towards a $94.00-$96.00 congestion band. The combination of a rising dollar and the nagging unemployment that will prevent a sustainable recovery from taking hold, makes this inevitable.
 

TECH TALK

Crude oil's fall needs to eventually break through the four market bottoms posted in May to gain additional downward momentum. Recovery should be limited to $100 which we see as a temporary ceiling. The bias is definitely to the downside now, but a recovery to a higher close will bring out the market bulls again. On the outside trading has ranged between 104.63 and 94.63. The higher levels are becoming unsustainable. A break of 94.63 on settlement will target 90.00, which should be challenged rather quickly. Bargain hunting there should bring the market into the trading range mentioned above.
 
 
NATURAL GAS

Despite nagging imbalances and a new low posted for the current move on Friday gas managed to finish higher. The market has not surrendered those gains this morning despite pressure on commodities practically across the board. First of all, an oversold condition had appeared. Headlines that implied terrorist groups have been looking at oil and gas infrastructures as possible targets and outages in the South, where cooling load will register first, also must have influenced some buyers. Nuclear outages remain high, as well. About 23,000 megawatts, or 23%, of the nation's nuclear fleet was off line on Friday, about 12,000 MW more than a year ago and nearly 9,000 MW above the five-year average. NWS 6-10 day outlook  called for above-normal temperatures along the East Coast must also serve as a reminder that nationwide cooling load is not far off. The confirmation will be if more upward momentum is generated today. Option expiration Wednesday and contract expiration Thursday should add to volatility. The ability to hold 4.20 or not will be the directional cue.
 

TECH TALK

The break of 4.109 support put the bias to the downside for a possible test of 3.99 support which, in turn, targets the recent 3.731 low. However, the reversal to the upside moves the bias back to neutral from bearish. Rallying above 4.20 on settlement shows the market's inherent strength, as do prices running well ahead of today's pivot at 4.191, and points to a possible resumption of the move off the March lows and a 4.879 target, which if broken points to 6.108. As we thought, the market was vulnerable to developing oversold conditions. Stay with length, but wait for a break above the moving averages to open fresh longs.

source: KilduffReport.Com