IntroView

The ECB came out swinging a short time ago, going all out with non-standard measures to stimulate lending, allowing loans to banks of up to 3 years, among other moves including another rate cut. This second rate cut by new ECB President Draghi reverses the wildly ill-timed rate hikes engineered by the Jean Claude Trichet, earlier this year. This is supposed to represent the euro-zone one-two punch - monetary easing followed by monetary union. The former, of course, does not require treaty changes. Look for the wire services to blare remarks from the sidelines of the EZ summit from any and all comers who can't resist the allure of the microphone and a moment or two of notice. The ECB's move does highlight the state of affairs, which are not good, if these measures are needed. Keep in mind this comes in addition to the coordinated central bank intervention of last week. In the US, weekly jobless claims data improved, adding to the relatively positive economic data coming out of late. A real solution to Europe's woes will likely remain elusive, but they may be able to cobble together a plan that will represent change the markets can believe in.
 

Petroleum Markets
       
The market has been attempting all through both the Asian and European sessions to take back some of the losses incurred after EIA reported an unexpected rise in crude oil stockpiles yesterday. Hopes for an ECB rate cut have also provided support against further losses with only a 100.26 low, printed about three hours into Asian trading. In fact most of the price action has hewed fairly close to the final price of yesterday's trading at 100.71. A possible growth inducing rate cut in Europe, the Middle East moving from its usual simmer to a low boil on possible Iranian sanctions and a clearly, albeit slowly, improving US economy are all obviously supportive. But clearly, these will be outweighed if European policymakers conclude a resolution that fails to produce a positive perception among market participants. After eighteen months of squabbling we do not see a good conclusion emerging by Friday. Chancellor Merkel is absolutely correct, it is a process that will take years, and so we come to the same conclusion that we have consistently expressed, this can not be good for energy demand growth. But, the market may come to an entirely different conclusion; and it is the final arbiter.


Petroleum Tech Talk   

Crude oil prices have not strayed from the tight range established overnight. However, the drop through 100.00 yesterday shows us that there are still many weak, late, longs in the market tired of waiting for a move over the recent high at 103.37. This is confirmed by the falling open interest, even net of expiration migration, and Commitments reports. New positions are the lifeblood of any directional move and when they dry up, reversals are usually not far behind. Therefor we are changing our bias to lower. A settlement above Monday's high of 102.44 will change that view. The next target will be 94.99, the low before the last leg up to 103.37.


Natural Gas       
   
Gas breached an important technical marker as participants await EIA storage data for the week ended Dec. 2nd which we think will show a 19 bcf draw, reflective of the recent moderate weather. Despite overnight readings dropping into the 30s, it is far from the readings posted in the high consumption regions last year which caused a 79 bcf draw for the same time period. Traders obviously have been calculating that even if the mercury dips to records for the rest of the winter and the US economy continues to strengthen, it will be insufficient to bring working gas in storage much below the 2 Tcf mark when restocking begins in the Spring. Certainly, if prices drop radically, production will be shut in, but we are far from that point. Additionally, a wide spread belief that gas is the wave of the future, lower cost fracking will probably continue apace. Stockpile levels and falling prices, especially at this time of year, emphatically demonstrate little expectation of short or medium term shortages.


Natural Gas Tech Talk     
           
Now that prices have settled below 3.44 we will change our bias to lower. There should, at the very least, be another test or our original target of 3.255, which if breached, could bring an assault on 3.00 rather quickly. Fibonacci enthusiasts will note that a 100% projection of the 3.978 to 3.285 move measured from the recent high of 3.689 will be 2.996, which is close to the 3.00 psychological marker. A settlement back above 3.44 will suggest former support turned resistance at 3.77 is vulnerable and 4.00 beyond. The market has bounced near 4.40 for several sessions and if that continues an oversold condition could build bringing with it attendant violent corrections which should be seen as selling opportunities. However, short positions established here also have a good potential for success. Risk is limited because the stop loss level of 3.44 is close.

source: KilduffReport.Com