IntroView

The post mortem on the third quarter sets up the outlook for the fourth: euro zone worries, diminishing refined product demand, and pared GDP forecasts that increasingly call for no growth or recession. Unemployment will dominate the calculus and kicks off the quarter on Friday. A poor reading will grab the attention of policymakers and the political throw-down will be on. Speculative interests have moved into the US dollar, according to Friday's CFTC data, and this is a notable shift that could further pressure energy and other commodity prices beyond the economic metrics. The one winner for the quarter will, likely, be gold. The Greek and other euro zone debt issues and the flagging US economy will push investors back bullion's way. China may be stalling as well, and, if it is the last domino to fall, energy prices could fall a long way in the quarter.

 
Petroleum Markets    

It is hardly surprising, with prices and open interest falling, that the Commitments report showed speculative interests reduced length, the second straight week they cut their exposures. Crude oil fell another 3% on Friday, posting the weakest quarterly performance since since Q4 2008. In fact, the market was posting fresh lows at 5:00PM, two and a half hours after the open outcry session ended. A story hit the wires right at the close, that OPEC output in September rose to the highest level since November 2008, as a Saudi cut was outpaced by Iraqi and Libyan gains. Similarly, equities posted their worst quarter since the depths of he 2008 credit crisis and the euro closed out its worst quarter against the dollar since June 2010, all of which weighed on crude oil prices. Why not? There does not appear to be a jot of hope anywhere that policymakers have anything close to a solution to the current economic dilemma. Actually, the financial markets are saying that they think it will get considerably worse. With that psyche extant, it will.
 

Petroleum Tech Talk    

The market crashed right through Friday's low, right after the Asian session opened. Crude oil's recovery was limited at 84.77 last week. Friday's sharp fall suggests that recovery is finished and the decline is resuming. The bias is on the downside this week for a test of last week's low at 77.11 first. A break there will likely send crude oil through 75.71 support from last May with the 70.00 psychological level not far behind. On the upside, above 84.77 will take away from the bearish case and if it is limited to there, bring more consolidative trading. But after all, we'd expect upside to be limited below 90.52 and bring a downside break out eventually. Remember, when fundamentals and technicals point in the same direction, powerful directional moves ensue.


Natural Gas     
 
Gas prices plunged through support, hardly looking back as it settled at an 11 month low. This time there was no short-covering rally, despite open interest being saturated with short positions. Comfortable inventories and robust production are likely to continue to overwhelm sluggish demand consequent to the weak economy. Obviously, as cooling load diminishes and heating season gets a late start, the imbalances of oversupply and weak economic performance will be exaggerated. Third quarter prices dropped more than 16% from the previous quarter, the biggest quarterly decline since Q1 2010 when prices shed more than 30%. Baker Hughes data on Friday offered no help either. The gas-directed rig count climbed 11 last week to a nine-month high of 923. The inventory shortfall relative to last year should continue to narrow over the next few weeks, as well, with the potential for more triple-digit builds as mild weather keeps demand in check.


Natural Gas Tech Talk            
 
The bias returns to lower, as the market crashes through support. Short covering last week met selling pressure at 3.853 last week and Friday's break of 3.662 support suggests that the decline is resuming. A 61.8% measurement of the move from 4.099 to 3.662 produces a target of 3.583 first. A break there then will target 100% projection at 3.416 next. On the upside, break of 3.583 resistance is needed to signal near term bottoming. Still do not rule out short covering up to that point. Stay with shorts but exercise extreme caution opening fresh shorts until 3.583 is breached.

source: KilduffReport.Com