IntroView

The much anticipated euro zone bailout deal has been struck, but not before the Brits bailed out. Not willing to sacrifice sovereignty for unity, Britain balked at not having veto rights over aspects of the plan that requires budget submissions to a central body. There is an additional 200 billion euros for the IMF to use to assist debtor nations. Markets have risen mildly on the "breakthrough." Interestingly, late yesterday, it looked as though Germany was going to be the spoiler not the UK. It does not appear that the markets feel this is enough; it could be the UK refusal, but also overshadowing the markets is the downgrade by Moody's of France's three largest banks. The other shoe may still drop courtesy of S&P: will this EZ plan be enough to stave off the threatened sovereign downgrades? We think the downgrades will occur, and that will further shake the markets. The pain of the austerity plans will certainly push the euro zone further into recession, impacting China's hopes for a soft landing. The other news of the morning is a Reuters report that China is creating a new $300 billion investment vehicle, in part to assist its EZ customer base. It seems that there is a lot ahead of these countries, in terms of calming the waters. Lots of plans.
 

Petroleum Markets        

A character in a movie once opined, "sometimes, nothing is a real cool hand." Apparently, EU policymakers feel similarly because the much awaited summit really produced.....well, not much. Early advances in the European session have already been surrendered as market participants seem to be determining that the actions will be insufficient to resolve the crisis. The larger question, the one that we have been querying all along, is what is that is good for energy demand growth? Austerity policies can only result in growing unemployment and high and higher public sector debt. This can hardly be expected to generate much aggregate demand from consumers, as the contagion creeps from Europe, to the US and to the export driven economies in the developing world. But there is still the growing problem of Iran to keep oil prices from sinking too fast. Is the drone another step towards sanctions or a Trojan horse?


Petroleum Tech Talk   

Price action in crude oil yesterday left the largest volume and widest range in a week. Additionally, open interest continues to drop, even on a net basis when allowing for expiration migration. Consequently we will keep our bias for lower. The recent leg from 94.99 to 102.44 has concluded. The next target on the downside will be the 94.99 low, the point from which the last leg began. There may be some profit taking though at the end of a generally down week, considering the time of year and the rising level of uncertainty before a weekend so we would be very surprised if that mark was breached today. If it is however, it would emphasize the rejection of the bull case. We do expect it next week. The ascending triangle that had formed though has definitively bee broken and its lower boundary will now become resistance.


Natural Gas          

Market bulls got some temporary help from the EIA report yesterday which showed a larger draw than consensus, but was closer to ours. Data showed that for the week ending Dec.2nd, 20 bcf was pulled from storage. Those gains were short lived though as underlying fundamentals are still overwhelmingly bearish. The total still stands near record levels, and while the weather is turning colder, the mercury is not dropping to levels that will impact demand significantly. Unless or until winter appears with a vengeance, the more difficult it will become to work off excess supply. Expectation of an onerous balance come Spring will necessarily weigh on prices. However, as falling prices generate growing short open interest, consequent reactions to drops in temperature will be more violent and carry farther than might normally be expected.


Natural Gas Tech Talk           
     
Prices violated support turned resistance at 3.44, and in fact settled above that mark, but we will keep our bias for lower, and we need a settlement above 3.77 to reverse that judgment. Our original target of 3.255 is again in the cross-hairs. A breach will bring 3.00 under assault quickly. A break above 3.77 will target 3.978/4.00. The break of the short lived mid-November rally suggests that the larger decline from the September highs is still underway and targets the previous low at 2.409 from 2010. While this is highly improbable in the short run, the longer prices remain depressed, the more likely is becomes.

source: KilduffReport.Com