IntroView

We finish a spectacularly volatile quarter, today. The price swings were only rivaled by the mood swings. The declines seen in markets for the quarter are staggering. While we tend to focus on the euro zone and the US, Brazil has been battered -- its currency, in particular. Didn't they have it all -- oil, Olympics, helluva soccer team -- as recently as last Spring? The weekly jobless claims number was under 400k for the first time in about 8 weeks, but the Labor Department warned against enthusiasm citing seasonal adjustments, which was incredibly forthright of them. A leading economics research firm, ECRI, states that their indicators point to a looming recession of some significance. With many outlooks barely above zero, we would look for more negative readings to emerge. We continue to maintain that the next catalyst will likely come from next Friday's jobs number. If it comes in near or below zero, the flight to policy measures by Congress to "do something" will be overwhelming. Looks like a quiet day to finish a tumultuous quarter.
 

Petroleum Markets   

Crude oil continues to cover the same ground on tepid volume and declining open interest over unusually wide daily ranges, as participants wait for a fresh directional cue. Fundamentals favor bears while geopolitical events surrounding the global debt crisis occasionally work to the bulls favor. Yesterday was such a case as Germany's support for an enhanced ESFS for Europe's troubled economies sparked some temporary optimism. 13 out of 17 euro zone member nations have now approved the new parameters. US data, early in yesterday's session, showing a drop in new unemployment claims and a revised Q2 GDP growth to 1.3% from the previous estimate of 1.0% brought the market to the day's high but price action sputtered thereafter. EIA reported that oil from Canada continues to pour into the US with exports up 133k/bpd from a year ago at 2.188MM/bpd, while demand fell nearly 4% percent year-on-year, showing the effect of a weak economy on oil consumption. In the final analysis, policymakers do not have a substantive resolution to the debt maladies either in the US or Europe nor is there any definitive evidence, from data, of a recovering global economy.


Petroleum Tech Talk  

Both yesterday's move lower and Monday's rally produced only tepid volume, suggesting players are moving to the sidelines waiting to jump in. Usually session ranges pushing $4.00 are also accompanied by noticeable changes in open interest and that has been absent, as well. Today's rise then suggests that the recovery from 77.11 temporary low might extend further, although our bias will remain for more downside though until 90.52 resistance breaks. The decline from 114.83 should resume and a break below 77.11 should send crude oil through 75.71 support to the 70.00 psychological level next. However, a break of 90.52 resistance, on settlement, would invalidate this view. The market remains below the EMA on daily, weekly and monthly charts and shows the market's inherent weakness.


Natural Gas     

The effect of oversupply and mild autumn weather were clearly demonstrated in yesterday's unusually large injection. For the latest period, EIA reported that 111 bcf was added, a massive number for this time of year. Still, the lowest the market could manage was 3.685. The low for the current move down from the mid-July highs was hit last week at 3.662, and the market has been below the 4.00 psychological threshold for more than two weeks. So, the inability to strike new lows on the abundant build makes us extremely wary. But the market also shook off the Q2 GDP report showing a rise of 1.3%, an upward revision from the Commerce Department's previous estimate of 1% growth. While the market fundamentals do not have the composition to make for a serious rally, shorts have again saturated open interest and they can be easily panicked, particularly at this time of year and with overnight lows in New York dipping into the high 40s at the weekend.


Natural Gas Tech Talk     
       
We are going to change our bias for gas to neutral for a bit. With 3.859 resistance intact, the near term outlook remains bearish and the recent decline is still expected to extend, sooner or later. A break of 3.662 will target 3.255 key support level. However, a move above 3.859 resistance will suggest short term bottoming and will produce a target of 4.099 instead. This mark is quite near and with positions heavily weighted to the short side is easily reachable, particularly with month-end bookkeeping today. While we continue to favor another fall eventually to 3.255, a counter-trend short-covering bounce may be imminent.

source: KilduffReport.Com