IntroView

As we anticipated, the markets are on the rebound this morning on news that the ECB debpt purchase facility could rise to 3 trillion euro. Now, one should await an ill-timed remark from an off-the-reservation central banker with loyalties to an opposition party; the markets will heave, again, convinced that Europe cannot save itself. It can and will, but, as we mentioned yesterday, not without the attendant drama of political brinksmanship. This is not to ignore the ramifications of firing up the printing press to create euros nor the implications for economic slowdown due to widespread austerity. We continue to believe that the economic data is not good enough, despite the embrace of data like 85k jobs being created in October in the US. There remains a great deal of cash on the sidelines, and it may be forced into the equity market before year-end. The reckoning looms after the Holiday window dressing, however.
 

Petroleum Markets
       
Crude oil suffered early losses on the continuing crisis in Europe, but pared those losses later after stockpile reports showed tightening. In the end though, the market shrugged this off as Europe's problems continue to dominate. In a blinding glimpse of the obvious, German Chancellor Merkel said Europe's plight was now so "unpleasant" that deep structural reforms were needed quickly to accelerate and deepen integration of the euro zone countries. The crisis was even cited by OPEC as a risk to expectations for demand growth in its 2011 World Oil Outlook. An op=ed piece in this morning's New York Times even goes so far as calling for Greece to withdraw from the union and return to the drachma. In the US, the "super committee" appears deadlocked, as the deadline for mandated budget cuts looms. Add to these woes, oil prices that have risen by almost a third since the beginning of October. We just don't see a resolution to either conundrum that produces a solution beneficial to economic growth.


Petroleum Tech Talk   

Crude oil extended to 97.84 yesterday. But it was an outside day with a new high and a lower close, often an early signal of a reversal. While the market has posted new highs for this move, the momentum oscillator has stayed relatively flat, another divergence. But as long as 90.52 is intact we will keep our bias for higher. 90.52 is the breakout for this last leg up, and a breach of that level will be required to change the bias and confirm a reversal. Once that occurs, 89.17 will be the next target, leading to a re-test of 75.00 psychological support, and if that is broken, the mid-60s loom. If however, the market continues up and through 100.00, a re-test of 114.83 is not out of the question. Wait for that to open fresh length, but stay long until 90.52 gives way.


Natural Gas          

Gas managed to post another low since for this particular leg of the move. Even the approach of more seasonal temperatures failed to reverse the market in any significant way. But even in the face of continued worries over rising inventories and weak demand, there was not much follow on selling. Tomorrow's EIA report which we expect will show injections of 39 bcf will put the total over 3.8 Tcf.. Until cold weather shows up in the high consumption regions, this should continue to weigh on prices. This is what is probably inhibiting sellers despite the overwhelmingly bearish fundamentals. Additionally, EIA's consumption estimates for Q4 gas demand were revised downward to 69.88 bcf/day from 70.86 bcf/day. At this rate the end of season, when demand drops precipitously, stockpile totals may top 1.8 Tcf.


Natural Gas Tech Talk   
             
The market posted another new low yesterday at 3.648 and has moved even lower to 3.642 this morning, but has since moved higher. But the market is covering the same ground, and so, an oversold condition may be building up. 3.77 was not breached, and so, we will keep our bias for lower. Support should appear at the remaining 3.60-3.648 roll gap left after the November contract expiration and then at the 11-1/2 month low of $3.446 hit in mid-October. A breach there will open the way for our ultimate target of 3.255. Above 3.77 will put the bias back to the upside for 3.978 and possibly further to 4.033 next.

source: KilduffReport.Com