IntroView

Markets are languishing this morning, having expended all the hopefulness it could on the latest from Europe: Italy's Berlusconi finally stepped down over the weekend, clearing the way for technocratic rule and austerity for the Italians. Last week's volatility in equities hid another decent gain for the week. There is a lot of economic data this week, starting tomorrow, highlighted by inflation readings. We would expect further gains across-the-board, as the data will likley continue to pass for good-enough. We expect the gains to continue into the end of the year, as we have been writing, with Q1 2012 being a much more difficult period for the markets, as reality bites.
 

Petroleum Markets       
 
Crude oil prices continue put up new highs as we switch our focus to the January contract. Another new high at at 99.57 was posted at the Asian opening last night. The market dropped to as low as 97.63 and has since moved up and over 98.00, once again. There is nothing of significance on the calendar today, but the market will keep a watchful eye on headlines emanating from Europe. An Italian government bond sale met its goal of raising $4Bn this morning, with good buyer response, but at the highest yield since 1997. Oil prices advanced last week on the perception that the euro zone will get past current maladies, Iran's nuclear ambitions and winter fuel and diesel demand. Of course, $100 oil will do little for the weak recovery, and the higher prices go, skepticism about sustainability will rise proportionally. In Q1 we had the "Arab Spring" to worry about, but with Libya's production expected to hit 813k bpd by next month and output from nine North Sea grades set to rise by nearly 3 % in December from the previous month as well, in a sluggish economy, we wonder how much further the rally has to go. The first doubts may come from the US "super committee" which appears deadlocked as a deadline looms.


Petroleum Tech Talk   

The crude rally picked up momentum towards the end of the week, posting another high this morning for the January contract. We will consequently keep our bias for higher. The 100.00 psychological resistance is eminently reachable. It is worth mentioning that the 61.8% retracement of the 114.83 to 74.95 move is 99.60. Secondary resistance for today comes in at 100.53, as well, so we anticipate a struggle near 100.00. Taking profit on already established length may be prudent and we would be very wary of adding to or opening fresh length until the market settles over that mark., which if it happens might generate enough momentum to challenge 114.83. Today's first support has held at 99.66, with a low of only 99.63 so far. A few days consolidation may occur before the next directional push.


Natural Gas          

Natural gas prices continued to leak lower on Friday, posting a three-week low. The ongoing shoulder season, with its accompanying mild weather has delayed the heating load normally expected at this time of year. Added to the ongoing woes of poor demand consequent to a sluggish economy and overproduction it is hardly surprising that prices are falling. However, it is a crowded trade and recent responses to bouts of cold show the kinetic energy that is building up. But reverses should not carry too far. Currently, 3.831 Tcf of gas is in storage, and with another fairly large build for this time of year expected on Thursday puts it on a trajectory to exceed last year's record of 3.837 Tcf by next week.. It also looks like the mercury drops a bit after Thursday so some profit-taking may be seen as the week progresses. Be cautious about opening short positions right here but stay with positions shorted at higher levels.


Natural Gas Tech Talk            
    
The market keeps putting up fresh lows, keeping the decline alive so our bias remains for lower as long as 3.77 is not challenged., we will keep our bias for lower. Downside momentum is steady, but kinetic energy is building up as open interest gets heavily weighted to the shorts, but the market is on track to reach 3.446, the previous low. A reversal that extends up and over 3.978 will be required to put the bias back to higher. As long as the downward momentum holds, and extension past 3.446 could potentially reach the ultimate target of 3.255, but the probability drops as the calendar progresses towards winter. Disappointing demand after the holidays though will have everyone looking seasonal conclusion totals and that could really weigh on prices. For today though, be careful about adding to or opening fresh shorts.

source: KilduffReport.Com