IntroView

Stock futures are marginally lower this morning. News that Germany's economy contracted slightly in the fourth quarter is proving to be a reality check in the face of the New Year's exuberance. Germany is dominating the news flow this morning. Chancellor Merkel is on the wire saying that Germany will seek help from the ECB to leverage the ESFS rescue facility. The post-Trichet ECB regime is looking to be quite an activist one. The ECB is expected to cut rates, again, tomorrow, as well. The Iran situation continues to distract the markets. The EU is expected to grant waivers to member countries to allow some to continue to purchase Iranian oil; hardly, the stalwart show of unity that has been behind the recent war of words. More worrying, however, is the apparent killing of an Iranian nuclear scientist in Iran by motorcyclists that attached a car bomb to his car and detonated it. If this story sounds familiar, it is because it is a repeat, in terms of methodology, of a similar killing exactly one year ago. There is no shortage of intrigue and speculation surrounding this killing. The Fed's Beige Book is out later today. In terms of a reality check, it will be good for the markets to get a thorough reading of conditions in the Fed's several districts. Certainly, the reading from Germany is worse than expected and the debate over ensuing euro zone recession and its severity will dominate market sentiment in the coming days.
 

Petroleum Markets  

Price action is going over familiar ground, albeit the lower end of the range. While new highs were not posted, the market remains stubbornly over $100.00. Iran's unpredictability and ongoing strikes in Nigeria make modest acquisition of length a prudent strategy. Without the political standoff between Iran and the West deteriorating into an actual supply disruption, prices should continue to cover the same ground. As tensions rise consequent to the volume of bellicosity, so will prices. Quiescence though, will drain upside momentum and shift the focus back to the potential downward pressures presented by global economic weakness and the euro zone debt saga. The more immediate directional determinate will be EIA's report, later this morning. We expect it will show stocks have grown in the recent reporting period, endorsing API's report, last night. The only certainty in the current environment is volatility. However, we urge in the strongest possible terms to not lose sight of the EU's problems. They are structural in nature, and no substantive resolution appears to be at hand. Trying to ride length to riches on the threat of possible supply disruption might led to the almshouse instead as these sort of moves often reverse as quickly as they appear.


Petroleum Tech Talk   
 
While moving once again above 103.00, yesterday's price action was inconclusive. For the first time in several sessions there was a higher high, higher low and higher settlement. Our bias remains for higher, until there is a settlement below 98.00. Between 98.00 and 92.70 will shift the bias to neutral, but a settlement below 92.70 will target key support at 90.52, the point from which the last leg higher off the 74.99 low was launched. A break above last week's highs will target the Spring highs at 114.00, with only interim congestive resistance in the 104-106 area, which we suspect could be reached and surpassed very quickly on any exogenous influence. But be very, very careful. Visceral reactions frequently give up ground fast or sometimes even faster than it was gained.


Natural Gas
           
The longer it takes for winter to show up, the more and more the onerous supply overhang will focus perception. Yesterday saw the post of the lowest prices in over a year. Sellers are in control again this morning, as well, in the middle of January. Even though we look for EIA to report a 94 bcf withdrawal tomorrow, it is below historic norms and will widen the surplus to averages. EIA now predicts that the end of season total will surpass previous records, testing available storage capacity. The discussion will now be moving to the topic of how low prices can go before production is shut in. notwithstanding the lower cost of shale extraction, that point must be close. Production grew by 4.5 bcf/day in 2011, the largest year-on-year increase ever, EIA expects another 1.4 bcf/day to be tacked on to that in 2012. While a bottom must be close, a sustained 2.00 handle, moving into Spring, will be the norm.


Natural Gas Tech Talk
                
Posting fresh lows will keep our bias for lower. The target remains, 2.409, but we feel a bottom must be close. Accordingly stops on short positions should be tightened. To the 13-day EMA at 3.04. It will however, take a settlement over 3.201 to suggest that a temporary bottom has been placed, which will also put former support, now resistance, at 3.44 within reach. As the calendar heads into the coldest months of winter it will be increasingly more difficult for the market to hit our target given an open interest still saturated with short positions. The real test though ,will be coming in March, as participants ponder end of season totals poised to break records again, which potentially could hold a test of 2.00. Price action today has already pierced support at 2.881. Secondary support might be found at 2.821, easily within reach. Watch out for a session where new lows are posted but settlement is higher, a familiar technical warning signal.

source: KilduffReport.Com