IntroView

The week's main event, the December employment report, showed 200,000 new jobs on the headline - strong showing. Whatever positive spin and market strength that comes from the report, the page will quickly turn, and the question will become: what will we do for an encore? The burst of activity from the holiday shopping season is over. And prices at the gas pump are rising, again. $100+ crude oil will visit $4.00 per gallon gasoline on the consumer, which will cause economic slowing, just as we witnessed last year. The euro currency is solidly below $1.30, having broken $1.28 and now targets $1.22, in our view. The Iranian situation is the biggest wildcard and potential market disruption event. Iran is increasingly isolated: even China has thrown in with the West, reducing its purchases of Iranian crude by 50%. The EU embargo is coming; the new US sanctions are being implemented; and Japan and South Korea are seeking to buy their oil elsewhere. Iran is close to the point where it must either step-up or act-up. There is the possibility of another round of negotiations, if nothing else, this will calm the waters for a time, lowering the temperature on the situation and at the pump.
 

Petroleum Markets
     
A strengthening dollar, at the euro's expense, and a bearish EIA report gave caution to buyers who were mainly focused on Iran's threats to close the Strait of Hormuz. While the threat of supply disruption remains extant, and should not be taken lightly, the pace of selling yesterday picked up as a late story crossed the tape that Iranian officialdom had responded positively to an entreaty from the West, carried through an intercession by Turkey, for renewed nuclear talks, the core issue in the dispute. This sort of brinkmanship is part of the operational playbook, as Iran stalls for time, but it also carries the suggestion that sanctions are beginning to felt by the regime. More troubling though for the bulls are Europe's ongoing economic maladies. This was made brutally clear with the euro diving under 1.2800, to the dollar's benefit, and as a consequence, weighing on crude oil prices. Data released earlier in the day held the prospect that the US employment situation was improving with filings for unemployment benefits falling last week, but participants will remain skeptical until confirmed by today's non-farm payrolls report. Estimates hold that employment grew in December, but a positive or negative departure from the 150k consensus will hold today's strongest directional impetus.


Petroleum Tech Talk   
 
We will hold our bias for higher, at least until a settlement below 100.00 is posted. We will move to neutral at that point and wait until the market moves below 98.00, before declaring for lower. The higher bias still targets 114.87, but as we said yesterday, we remain skeptical. The downside critical price is 90.52, the point from which the last leg higher broke. The first barrier will be 100.45, the 13-day EMA. On the upside fresh higher above the two-day mark of 103.74/74 will be necessary to keep upside momentum positive.


Natural Gas   
         
EIA reported that only 76 bcf was pulled from stocks for the latest period which stalled a corrective rally that pushed prices as high as 3.12 yesterday and widened a growing surplus to previous years. With a significant a portion of what should be the highest demand season of the year gone, Mother Nature will need to work especially hard to whittle down stockpiles heading for what could be another record, come Spring. Prices posted the day's lows immediately after the report, but downward momentum was insufficient to move below the contract low, posted Tuesday. With the mercury climbing back up into the high 40s again, constrained demand should bring lower prices. Working off the growing surplus will become increasingly difficult with each week that passes with under performing demand. Production shows no sign of abating and, for the intermediate term, the weather shows little sign of cooperating with potential bulls. Still, the more sessions that pass without fresh lows, builds kinetic energy for a correction.


Natural Gas Tech Talk     
            
Interrupted by a bearish stockpile report, short covering stalled at 3.12 yesterday. Not enough to change our bias which remains for lower. Settlement above 3.201 would be necessary to shift to neutral. A breach of 3.44 would call for a higher bias. The downside target is 2.409, with interim support at 2.936, the contract low, posted Tuesday. Trend resistance comes in at 3.096, the 13-day EMA. While the market is not grossly oversold, open interest remains saturated with short positions, and the potential for more corrective rallies remains high. These should be looked at as selling opportunities, but keep stops at 3.201, and be cautious about opening fresh shorts or adding to positions until new lows are posted.

source: KilduffReport.Com