IntroView
 
The recent rallies held up, more or less, yesterday, although selling  did ensue at the end of the day for equities. News of Slovakia's rejection of the ESFS expansion and the news of an Iranian plot to kill the Saudi Arabia ambassador to the US muddled the picture. Obviously, for energy this is the mother of all geopolitical risk, but the ESFS snags has hit the markets over the past several months. The overall strength is impressive and it seems we are reaching a critical juncture: whether the global economy is on the cusp of a turnaround or another leg lower. We cannot seem to find the hopeful data that is being alluded to the former conclusion -- case in point UK unemployment hit a 17-year high. US unemployment data are well known. For now, hopeful analysis rules the day; it may in short-order, rue the day.
 

Petroleum Markets        

Crude oil certainly displayed some schizophrenic price action yesterday. After running up to post a new high off the recent low, prices gave back over $1.50 and finished the session below the day's settlement price, in fact below the previous day's settlement price, as well. Participants have a lot to chose from in trying to divine direction. Seasonal factors could ramp up demand a bit. Corporate earnings might be better than expected, showing the economy is improving. Alternatively, Slovakia rejected the July 21stproposal to expand the EFSF and the US Senate has rejected the Administration's jobs bill. News that authorities uncovered an Iranian sponsored plot to kill the Saudi ambassador to the US, with implications for a US response, reintroduced risk premium to crude prices. Additionally, OPEC cut its forecast of global oil demand growth for a fourth consecutive month on Tuesday, citing the downturn in developed countries and efforts by China and India to curb fuel use. While there may be justification for buying, risk is still on the downside with memories fresh of how easily the trap door opened in May and again in August. Economic maladies are far, far from resolved in either Europe or the US, and are just starting to show up in China.
 

Petroleum Tech Talk    
 
The counter-trend rally from last week's low of 74.95 extended to 86.64 yesterday before staging an abrupt reversal. Prices have reversed back up $2.00 this morning in the European session, but as yet have failed to put up another new high. As long as 90.52 resistance remains untouched, we expect the fall from 114.83 to continue to our target of 64.23. So far today, an inside day is being etched out, but so far, there has only been a $2.07 range, far below daily averages, and covering more than 50% of yesterday's action. The struggle between bulls and bears appears to be a draw then, for the moment, whichever side breaks out will be the side that dominates, at least for today. Still, the fact that there is confusion at this point in the move shows bulls are losing some of their influence. For these reasons, we will keep our bias neutral until there is a settlement over 90.52 or at or below our target.


Natural Gas       

The struggle for gas market participants will now be how to measure seasonal influences and market construct against overwhelmingly poor fundamentals. The later is well know and has been repeatedly parsed. A weak economy constraining demand, ample supply and overproduction from shale feeding those conditions. Will these elements now be trumped by an open interest saturated with shorts and anticipation of falling temperatures? It looks like the later won out yesterday. Now, how far can it extend? The nearby contract, which hit an 11-1/2-month intraday low on Monday before settling higher, has gained almost 4% in the last two sessions, its biggest two-day run up in four weeks and almost erasing last week's 5% fall. Will this be enough? At this point it is hard to say, but everyone knows winter is just around the corner. Heating season demand for gas is estimated at nearly 30 bcf/day or 50% more than summer cooling load.


Natural Gas Tech Talk              

We were one day off from calling the bottom. Is it the bottom? At this point it is hard to say given the overwhelmingly bearish fundamentals, but prudence dictated taking profits and standing aside trying to time and ride a counter-trend move is extraordinarily difficult and risky. We are closing in on the first barrier at 3.64 minor resistance. Trading at and through today, with a settlement at or lower may bring consolidation right into contract expiration. There is major resistance right behind at 3.853 and a breach there will open the way to 4.00. A period of sideways action and posting a low below our target of 3.416 will resume the challenge to our ultimate target of 3.255.

source: KilduffReport.Com