IntroView

Equity markets are modestly higher this morning recovering from yesterday's losses in the US. The euro has broken below $1.29, causing the greatest reaction in gold and silver, which are seeing further selling. The inverse dollar-oil relationship has broken down for now, which is a result of the renewed focus on Iran. But, with crude under $100, the current level of tensions appear to have been priced in. Italy's second bond auction in two days went relatively well. The tenor was longer, and yields settled just under 7.00%; however, demand was not strong, and higher yields would be necessary to attract more interest. Still, they got through the one of the most poorly timed bond sales in recent memory. Hopefully, they won't wait until next August in France for their next auction. It is almost cruel that with all the tumult the markets gave us this year that the major US indices are ending up basically unchanged. What is worse is that dismal performance of the BRIC stock markets, which have posted some spectacular losses.  China will be key in 2012. The latest bubble to burst has been the rare earth trade. One-time US stock market darling, Molycorp, has been pummeled. It appears that not only was China stockpiling copper ina speculative frenzy, but rare earths were a venue as well. We will be analyzing this and more in a special year-end report.
 

Petroleum Markets    
    
A move below 100.00, suggests that, for the moment anyway, market participants are taking Iran's aggressive verbiage is so much bluster. Still, 100.00 continues to be pressed. No wonder that economists are predicting a 2012 average of 100.00-120.00 for WTI. The fulcrum of the oil price debate is divided between political and economics. Familiar territory for the oil patch. But the intersection is quite clear. A spike off a supply disruption will probably be all that is needed to push Europe over the cliff, taking the US with it, and causing a building bubble in China to burst. The market is on a razor's edge. API issued a bit of a surprise last night, reporting a 9.6 MM bbl draw. Final assessment will come later this morning with EIA's report. Volume is thinner through last night's Asian and European sessions than it was last week. The dollar is strong, and the euro is at a decade low, so we will have to conclude that crude oil will finish the year, a dollar or less either side of 100.00. Price action today and tomorrow may not produce much more than an opportunity for a quick scalp.


Petroleum Tech Talk   

Price action in overnight markets has been contained within a a .62 cent range and volume has been extraordinarily light with only about 20k contracts changing hands as of this writing. Even though a new high for the current move was posted on Tuesday, it was quickly rejected and the settlement last night under 100.00 give the market a bearish look. We will stay with our neutral stance for the moment, at least until support at 92.70 is broken. We do not think that will happen today or tomorrow. First support today comes in at 98.41, with immediate overhead resistance at 100.06. An eventual break above the recent high at 103.37 will suggest a move back towards the Spring highs near 115.00, while it will require a breach of 90.52 to resurrect the possibility of new lows.


Natural Gas          

A few days of seasonal temperatures are not going to do much for gas, particularly with commercial and industrial demand typically slower during the holidays when many schools and businesses are closed. Upside action will probably only come from occasional bouts of short-covering with no extreme cold on the horizon and inventories and production still at or near record highs. With November and December a bust, from a demand point of view, the concern now will be how much gas is on hand at the end of the season. Unless or until some demand producing weather shows up, the conclusion will invariably be that it will be another record buster. Another new low yesterday keeps the momentum going, but it naturally begs the question, why is 3.00 such a stiff barrier? This is why we keep warning about the possibility of a violent reversal.


Natural Gas Tech Talk    
            
Consolidation near the lows continues, so despite testing near lows yesterday, it was not enough to generate the momentum required to push through 3.00. As a result we will keep our bias neutral, until that occurs. We are increasingly concerned that this consolidative action is forming a base for a significant correction. The RSI is hovering just above oversold levels. Support continues to be 3.10 for the February contract, posted on December 19th. Initial resistance should come in at the 13-day EMA at 3.214. A move above will change the bias for higher, a push below 2.996/3.00 will put the bias to lower and suggest a test of the 2.009 low of 2.911. A breach will face no significant support until 2.409.

source: KilduffReport.Com