ALERT: CURRENCIES THE CRUX, BUT THINK IT THROUGH. OPEC FAILS TO HIKE OUTPUT OR TARGETS.
 
PETROLEUM MARKET

We have seldom seen a more inconclusive market as crude oil yesterday. Even though a new low for the move down from 104.00 was struck, selling momentum stopped dead at 97.74. The key coorrelation was the dollar. As the dollar moves lower, oil moves higher. But this will eventually run out of causality as the logic upon which it is based is obviated. Clearly, the Euro is moving higher as bond traders attack the paper of the PIIGS, making yields higher. Sentimentally, as the EU/IMF moves closer to an accommodation with Greece the euro will benefit at the expense of the dollar. But, this does nothing to address the aftermath of austerity programs necessitated by such an agreement which will be negative for energy demand growth. Similarly, the slowing economies in the US, and Chinese attempts to rein in their explosive growth will also negatively affect demand. Ergo, we still think a breach of 96.00 before 101.00 is probable. The negative bias will only be accentuated if OPEC increases production.
 

TECH TALK

Crude prices finally broke below 98.11 to 97.74 before running out of momentum. Volume was above average during the relentless buying that carried all the way to 99.74. Consolidation from 94.63 is still in progress but more sideways, inconclusive trading is possible. Periodic rallies are still possible as oversold conditions arise, but the should be limited by 104.60 resistance, on the far outside. The decline from 114.83 is still expected to resume sooner or later and break of 94.63 will target 90.00.


NATURAL GAS

Although there has been some early cooling demand and the relatively large number of nuclear plant outages that increases utility gas usage, consider the ample supply currently stored and record production and prices much higher will be hard to justify. Additionally, EIA, in its June Short-Term Energy Outlook, raised its estimate for domestic gas production growth, expecting total output this year to be up 4.5% from 2010 to a record high 64.61 bcf/day. They also expect  inventories at the end of October to near reach a record high above 3.8 Tcf due to high production and a mild summer relative to last year. Technically, what appears to be waning momentum also favors a falling market.
 

TECH TALK

The inability to even reach the previous days settlement shows a market leaking momentum, despite the succession of higher lows. A break below the 4.729 area would be needed to confirm a reversal. There is still an active buy signal with settlement above the moving averages. But with most price action, so far, below today's initial support of 4.816, the front end of the market is starting to show the momentum leakage. The successive highs of Friday and Monday, right about in the same area is a sign of weakening, as well. The upside break of 4.729 turned the bias positive and a break below, as mentioned above, will be needed to confirm a resumption of the retreat from the January highs.
 

source: KilduffReport.Com