IntroView

The euro zone leaders did not squander their opportunity to disappoint the markets, as we detail below The ratings agency, Fitch, pushed back against S&P and confirmed the USA's AAA credit rating and set their outlook as stable. We assume they took a look at those funky machines at the US mint and concluded, "yep, they can print dollars." There is a growing consensus that Mohamar Qaddaffi reign is in its last days. That situation and Syria may be reaching a climax, so geopolitics could quickly come to dominate the focus of the markets in the coming days.
 

Petroleum Markets

The weaker demand outlook that has pressured crude oil since the break from 100.00, was punctuated by a brief relief rally in the run up to the Franco-German summit yesterday. While the market had anticipated concrete and new resolutions for the sovereign crisis in the periphery, the meeting placed the main focus on medium-term governance issues. The ineffectual result was judged a dud by financial markets, particularly a proposed financial transactions tax; a staggeringly stupid idea, even more so that the US' "super committee" idea. Growing downside pressures are rising and growth is slowing further, all dampening the appeal of oil and the outlook for demand. The modest strength the market is currently showing is a consequence of the dollar suffering a bit at the expense of the euro, whose rise is predicated on the anticipated rise in borrowing costs for the Eurozone. Expectations are for more downbeat news from the US, as well. The slowing recovery and growth outlook for the global economy can not, through any prism, be viewed as good news for crude and consumption expectations.
 

Petroleum Tech Talk
 
Yesterday was an inside day with a lower close, usually a harbinger of a market moving lower so the recovery from the 75.71 low appears to have slowed. The 50% retracement of the recent leg from 100.63 to 75.71 is 88.16 and the market should run into fairly stiff resistance there. However, an upside break will signal that the decline from the 115 level of early May has concluded. The market remains below the 13-unit EMA on daily, weekly and monthly charts, so the market appears structurally weak. There was a net open interest gain over the Sept./Oct period showing some new shorts are opening. Support comes in at 81.03 and a break there will imply a resumption of the decline from 114.83 towards 70 psychological level next. This is the view we currently favor.
 

Natural Gas

Front month touched 3.915 during the session, the eighth of the last nine which traded below the psychologically important 4.00 barrier, but last week's 3.855 was left unscathed. Participants, focused on moderating temperatures and overproduction, are keeping one eye on tropical activity as the peak part of the season approaches. So far this season only one named storm, Don, has passed over the northern Gulf's gas producing areas, with most others moving out into the North Atlantic. But with much of the country's output now produced ashore, the Gulf now accounts for only 7.2% of domestic output, down from 16.5% in 2005, according to EIA. So, the mere threat of storm may not move the market like it once did. Since spring, prices were prevented from breaking down by a deficit between storage and the five-year average. That gap, which usually closes earlier the year, yawned all summer as a result of unusually hot weather. Now that the thermometer is falling, that gap should close absent sweltering temperatures drawing down the record production.
 


Natural Gas Tech Talk  
 
Intraday bias remains neutral for the moment. The market's inability to post a new low, despite settling below 4.00 should cause concern. A short-covering rally should not be ruled out, but upside should be limited by 4.23, and if it is the fall should resume. However, an upside break of 4.23 will produce an upside bias and turn focus back to 4.612 Below 3.855 should bring accelerating momentum targeting 3.692 as this reflects next. Instead. Considering the fundamentals, this is the scenario that will probably unfold, interspersed by violent short-covering rallies.

source: KilduffReport.Com