IntroView

The equity markets sank, again, yesterday, as the familiar concerns over the euro zone unsettled markets. The focus, now, is increasingly on Europe's financial institutions. The Wall Street Journal reports today that banks euro zone banks are facing real liquidity problems. They are resorting to convoluted repurchase schemes to convert illiquid loans and other debt into securities that can then be pledged to the ECB for cash -- not good. The story also highlights the recent refusal of a major US railroad to have any euro zone banks in their latest credit syndicate. While US oil prices rallied, yesterday, most other commodities fell. Cocoa hit a two-year low and cotton and coffee have been under pressure too. This morning, gold has fallen below 1750 an ounce, and copper has been under pressure of late. Yesterday's CPI showed little in the way of inflation even though most of that is attributable to the decline in gasoline prices during the survey period. Should we be more concerned about deflation than inflation? Maybe. Europe has to finally get its act together, before time runs out. To hear that banks are scrambling for cash is clear warning sign.
 

Petroleum Markets    
    
Crude oil built upon yesterday's dramatic rise in overnight trading, posting a high of 103.37 before surrendering over $3.00 after Europe opened, to score a low of 100.01. The market has since regained about $1.00 of those losses. Buyers have been motivated by news yesterday that Enbridge, Canada's largest transporter of crude oil, agreed to buy a 50% stake and would reverse the flow of the Seaway pipeline, that would channel oil from Cushing Oklahoma to export terminals on the Gulf Coast. A perceived supply gut at Cushing has been the major contributor to Brent premiums which had widened to as much $24.00, now trading near $8.00. While this news has temporarily trumped the European conundrum, the machinations of this morning's Spanish bond auction shows it is far from over. While we hate to argue with the market, these price levels are unsustainable given current economic conditions. How's that for not equivocating?
 

Petroleum Tech Talk  
 
Crude oil finished near the high point yesterday, with good volume and growing open interest, all signs of strength. However, this morning's $3.00 reversal off the highs show that the bull's edifice has some cracks. We were all ready to change the bias to higher before we saw that, but will now keep it at neutral, at least until the next level of resistance at 104.20 is broken. Tonight's settlement then could be key as to whether the rally has been broken or not. A finish below the psychological marker of 100.00 should rob momentum considerably, but a new high today will show the bull's stampede is unhindered.


Natural Gas    
      
Gas keeps trending lower as fundamental and technical indices indicate. Another new low was set yesterday at 3.30. There is very little on which potential buyers can pin hopes for a reversal. The calendar, which normally induces a fall in the mercury at this time of year is not cooperating. Production is high, demand is poor and at least two more weeks of unusually large injections to storage to storage are expected. This week, another 28 bcf injection should be reported by EIA which will close the gap to last year and switch to a surplus while setting another new all time record. The surplus to the five year average will widen as well, for the sixth week in a row. For today the market, at this writing, seems to be taking a pause, striking a low of only 3.325, and with technical markers within striking distance some profit taking might appear. But with the low demand usually associated with Thanksgiving, a full blown reversal seems improbable, at least until December.


Natural Gas Tech Talk  
              
Yesterday's low put our 3.255 target within striking distance as the trend down presses on. Momentum to the downside is very strong and breaking down to new territory takes some of the oversold condition away, particularly with some corrective buying so far today. 3.446 support, now resistance should be used for prudent stops. A break above threatens a return to 3.77, the point from which the latest leg down broke from. A continuation higher could press 3.978 which will turn our bias back to higher for a challenge to 4.00 and beyond. But for now, we remain bearish for an eventual test of 3.255. A break there will suggest a continuation all the way to the next key support level of 2.409, but eventual winter demand could make that target quite difficult.

source: KilduffReport.Com