IntroView

Friday's euro zone debt summit took on added urgency, with 15 of the 17 member states placed on negative watch by S&P for a downgrade that will result, if there is not a credible deal. So, the stakes have been raised for the pair knwon as Mer-Kozy. On the surface, the ability to achieve a deal that now seems to require treaty modification and the assent of the 17 nations, the accomplishment would seem daunting to say the least. However, in the end, this is a political decision. And many of the member states have had regime change that forged the very austerity that they are now undertaking. While the Germans do not want to get stuck with the bill, failure is not really an option either. Keep in mind the Germans had their own scare last week with that failed bund auction; although, that to us was a self-inflicted wound given that the stated coupon was 2% for ten years take it or leave it -- leave it they did. German factory orders showed strength this morning, so with the US data improving, there is all the reason to fashion a deal. We are not being optimistic here; we are being realists. The euro zone leaders, like most politicians, will walk us all up to the precipice, and then run back. Look closely at the summit pictures, and you will see that they have their running shoes on.
 

Petroleum Markets      
 
S&P stole center stage from Europe's leaders, as a threatened downgrade of the entire currency bloc rallied the dollar at the expense of the euro and weighed on oil prices. Through the Asian and European sessions, so far this morning, a swath of red has extended across, equities, currencies and commodities. It is difficult to come to any other conclusion that no mater what resolution policymakers come to, the end result may stave off actual recession, but not years of slow growth, rising unemployment and growing public sector debt, none of which will be very good for energy demand growth. As Europe tries to reach an accord, tensions remain high in the Middle East, helping to maintain oil prices above $100.00. A rising threat of sanctions against Iran for its nuclear ambitions holds an immediate threat to supply, but diplomacy is far from exhausted, particularly given the precarious state of the global economy. Helping to tip the directional scale will be stockpile reports tomorrow, where another drop in crude stocks is expected.


Petroleum Tech Talk   

A narrow range and low volume set the theme through Asia and Europe yesterday until late in the NYMEX session when volatility increased subsequent to S&P's announcement. This put prices below the ascending support of the rising wedge we pointed out yesterday. The market is attempting to retest that mark so the breach can not be judged as reliable enough to expect further downside, so we will keep our bias neutral until then. Participants have not had enough conviction to break overhead resistance at 101.22 or support at 100.01 yet. A convincing break of 100.00 will turn our bias back to lower. Similarly an upside break of the recent high at 103.37 will confirm a resumption of the rally off the 75.00, with a potential to reach the 105.00 area, at least.


Natural Gas       
   
The rally off last month's lows stalled yesterday as a response to continuing unseasonable weather which is not helping demand eat away at brimming stocks. A warming trend across the Northeast and Midwest was expected as far out as the next 11-to-15 days, according to one forecast. EIA reports that currently. working gas in storage totals 3.851 Tcf. Additionally, production is expected to climb to 66.87 bcf/day in 2012,so there does not appear to be much to bolster support. If December mimics November by extending the shoulder season, market participants will begin to focus on season ending storage totals extending well past 2 Tcf. Production would normally be curtailed as prices fall, but with observers touting gas as the wave of the future, and the clamor for energy independence rising this is not happening,as evidenced by the pace of fracking, and may exacerbate the slide in the intermediate and longer term. However, in the very short run, only Mother Nature can come to the aid of the bulls.


Natural Gas Tech Talk
               
Despite a break lower, gas has held support, so far. Prices have breached support at 3.44, but we need settlement through to change our bias, which will stay at neutral, for one more day, at least. So far, price action has been contained below the pivot at 3.492, but support at 3.413 has not been violated. Prices are also below the 13-day EMA. A reversal back up would need to surpass 3.77, to create a bullish picture, but that may change after settlement tonight. We recommend closing length, but be cautious about aggressive shorting, until a settlement below 3.44.

source: KilduffReport.Com