IntroView

The amperage from euro zone development headlines is back on display this morning. Word of an ECB-IMF lending scheme possibly emerging has lifted equities of their lows and oushed Dow futures up nearly 100 points. The difficluties of implementing a plan abound, however. Germany has, once again, stated its refusal to have the ECB become the lender of last resort, which is precisely what is happening right now. Importantly, one commentator this morning put it right: either the ECB bails out the countries or it will have to bail out the banks. French banks are particularly exposed to Italian debt for example, and we saw many banks get stuck on the voluntary Greek debt reduction. The daisy chain of sovereign debt to the extra national banks is sobering. S&P futures are below critical support at 1225, with the latest news flow, including a complete review of US bank ratings announced by the same S&P, look for more selling pressure into today's close. Oil, gold, and copper broke down, yesterday, and even with near-$100 crude, NYMEX gasoline is at its lowest levels of the year. The markets are not liking the economic backdrop.
 

Petroleum Markets      
 
Yesterday's price action suggests that the back of the rally has been broken. While the market will remain headline driven, acknowledging oil's role as a macro measurement, the price is still dependent on commercial considerations. In the final analysis, oil at upwards of $90 does not make for a supportive environment for sustainable recovery. As Spain and even France struggle with government bond auctions, the picture of economies falling prey to the debt crisis that began in Greece and has already led to a change in Italy's government comes into sharp relief. There are growing fears that the UK may be heading back into recession as well, as expressed by a fall there in consumer confidence to a record low last month. Almost every EU related story suggests at either severe austerity or dissolution, neither of which will be good for energy demand. Supply will continue to grow with Iraq's production at or near pre-war levels and Libya's output climbing daily adding to a negative calculus. Additionally, spare capacity, a real concern in recent years will be more than enough to cover marginal demand increments in the near future. Of course, oil prices will climb once the global economy improves but it is going to take a lot more than recent data suggests.
 

Petroleum Tech Talk   

Crude oil emphatically rejected Wednesday's highs yesterday, declining below Wednesday's low to post a session low mark at 98.34. An outside day with a higher high, a lower low and lower settlement is usually an early indicator of a trend change. But prices approaching 100.00 again today after putting up a low at 98.06 shows that the bulls have not completely surrendered their dominance. It is, and will remain, that the recent rally reached levels higher than where the market broke down from. As long as 90.52 or 103.37 holds we will keep our bias neutral, particularly with today's low right at the lower limit of the uptrend channel established off the 75.00 low. It may also take a few days of listless consolidation before a discernible trend appears, as well. There is probably more risk than reward inherent in opening fresh length here, and should be stopped at 98.00. similarly, shorts should use yesterday's high.


Natural Gas       
   
The slide in gas prices was temporarily halted as a consequence of a bullish stockpile report. After EIA reported that 19 bcf was injected into storage, well below expectations, prices rose sharply on a bout of profit-taking. But the inventory related gains were quickly surrendered, posting the day's bottom near unchanged. The configuration of the drivers forcing the market lower remain unchanged as well. An ongoing shoulder season, crimped demand and record levels of production. But sellers may be losing their dominance as the calendar runs out on them. It is nearly December and the thermometer will invariably fall in the high consumption regions. There is probably only a week or two before injections turn into withdrawals from storage. Whether those are great or small will determine how much more the market will fall before a seasonal bottoming consolidation starts to form.


Natural Gas Tech Talk
               
The response to yesterday's EIA report shows that there was more than a few late, weak. Nervous short positions, it was the first session in six that new lows were not posted. Those who followed our advice to stop out at the support turned resistance level of 3.446 avoided pain. The slide should continue as long as the next level of resistance holds at 3.77, so we will keep our bias for the downside, especially because our initial target of 3.255 is within striking distance. But momentum is becoming less and less convincing, so we still urge caution in opening fresh shorts at these levels. Once 3.77 is breached on the upside cover all shorts and move to the sidelines. Length can be considered once 3.978 is breached and that is what we require to change our bias. If that occurs the psychological the highs just above 4.00 are imminently reachable.
 

source: KilduffReport.Com