ALERT: OIL UP SHARPLY DESPITE BEARISH INVENTORY REPORTS.
 
PETROLEUM MARKET

Oil prices jumped above 100.00 yesterday even though the stockpile reports were bearish. Participants chose to focus on the startling draw in distillates rather than the surprising increases in crude and gasoline inventories last week. Even more surprising was the strength in gasoline despite weak demand ahead of the coming holiday weekend. Yesterday's gains held in the overnight session and may even extend as the euro improves at the expense of the dollar sparking another commodities rally. Sentiment warmed as the European Commission raised 4.75 bn euros in its second bond issuance this week, as they sold five year debt to fund the bailout for Portugal. Further sentiment support was seen from reports that China is interested in the coming auction of EU bonds for the Portuguese bailout. But make no mistake, this problem is not going away, and energy demand growth will be hard to come by in Europe amid the austerity measures that accompany these continual rescues, especially if the ECB raises interest rates.
 
 
TECH TALK

Yesterday's price action certainly edges the bias more towards the bullish case. Still, the overall look of the charts has not changed all that much. There is still a prominent bear pennant off the price action of May 5th-6th. Prices have only moved above the 10-day moving average into neutral territory so there is no active buy or sell signal. The market has extended past key support which is at 100.38 for today, with overhead resistance at 102.57. A break of the recent high at 104.60 would be required to signal that a break higher from range trading has commenced. With volumes thinning after today because of the first of the summer's holiday weekends it will be difficult to generate that kind of momentum.
 
 
NATURAL GAS

Gas held close to recent highs through yesterday but with only tepid conviction. Above normal temperatures forecast for the high consumption regions suggested increased demand. In fact, next week should be the warmest of the season so far for the East Coast cities. Participants are looking to the EIA report, later this morning for the next directional cue. We think they will report that 91 bcf has been injected for the latest period. June contract expiration today may also lend support. Front month gas has paced the gains of the last several sessions. But overall volume has been relatively light and open interest has actually dropped, suggesting short covering, not new buying. The stalling momentum troubles us, hardly surprising given the structural imbalances that have plagued the market for some time. Consider selling calls above 4.65.
 

TECH TALK

The chart maintains its bullish look with prices past the moving averages generating an active buy signal. We are concerned with the light volume and contracting open interest, which suggests a waning momentum. A break down below 4.20 again could bring 4.00 into play rather quickly this time, as a run to 4.729 looks more and more difficult. Still a break of that mark could gather momentum quickly as the last of the short run for cover, and set up a test of 4.879. We think a downside break is probably more likely, thus our recommendation to sell 4.65 or higher calls.
 

source: KilduffReport.Com