IntroView

Equity futures posted significant gains in early trading, but economic data a short time ago has curbed the rally. Weekly jobless surged back to 399k, and retail sales for December were not quite the strong reading that was expected. December sales were up 0.1% versus Expectations of 0.3% -- so much for the alleged the gang buster holiday shopping season. The stores worked their promotional magic, resulting in lower total sales revenue and razor thin margins. Both the UK and the ECB held interest rates steady, which is perplexing. Both had room to cut, and both are undertaking extraordinary measures to revive their respective economies. Why not cut rates? The ECB's Draghi is on the tape extolling the 3-year term loan facility and expressing doubts over the fututre, despite some good signs, says he. Hungary and Greece lead his top list of concerns. Separately, news stories are circulating that hedge funds are gunning for a Greek bankruptcy, in order to trigger to CDS payouts. They are amassing Greek sovereign debt to force the issue. That will be certain to endear that crowd with euro zone policymakers. Gasoline demand was shown to be poor, yet again, in the weekly US petroleum inventory report. More notable, however, was the decline in demand for diesel fuels. That category had seen solid gains most of last year, if there is a slow down coming to the economy, look for it to show up there first. For now, however, the overall economic is good enough to further the equity market gains and hopes for an economic revival. Yesterday's Beige Book indicated modest growth throughout the US economy, but the housing hangover is still not clearing and continues to be a drag.
 
 
Petroleum Markets  

Bearish inventory reports by both API and EIA had little effect on prices, allowing only a 100.88 low yesterday. Even as prices test the upper end of what has become a familiar range, it should be remembered that crude stocks now show a 1.5 MM bbl surplus to last year. Market participants seem to be holding prices above 100.00, as long as the dispute with Iran keeps percolating. Although it seems more and more analysts are assuming that they have more to lose than to gain by following through on their bluster. A successful Spanish bond auction, and Both ECB and BOE deciding to leave benchmark rates at current levels, has bolstered the euro, at the dollar's expense, consequently benefiting crude oil. New unemployment claims rising to 399k for the current period and tepid retail sales should keep crude oil's upward momentum contained, highlighting the US recovery's fragility. For the moment though, until EU comes to substantive resolution, Iran backs off, or Nigeria's restive oil union workers decide not to curtail exports, do not look for oil to break below 100.00.


Petroleum Tech Talk     

Yesterday's test above 103.00 will probably not be the last. Similarly, it will be difficult for prices to move below 100.00. So the chart presents an inconclusive picture, but we will keep our bias for higher, at least until there is a convincing break below 100.00. A break over 103.74, may generate enough momentum to carry to the next congestive level between 104-106, and past that to last Spring's highs near 114.00. A break below 92.70, the temporary bottom, will suggest that a temporary top has been installed, and open the way for a test of key support at 90.52. A break there may bring another test of 74.99 rather quickly.


Natural Gas          
 
Lower territory was probed yesterday and again in the overnight session. Prices are now the lowest they have been in January since 2002. Clearly, participants are acknowledging, at the very least, that weekly storage measurements will continue to underwhelm, for several more weeks. Contained in that assumption, is the probability of another record busting stockpile measurement, at season's end. Falling prices, brimming stocks and diminishing likelihood that weather will have a chance to make a substantive difference, necessarily leads to a conclusion that production will have to be trimmed, at some point. Crude oil at over $100.00, and the possibility that a supply disruption could spike prices even higher may provide ancillary support, but price action shows skepticism on that point. And with all drivers overwhelmingly bearish, scant hope for those sitting on inventory. We caution though that a bottom must be close.


Natural Gas Tech Talk   
              
Gas breaking down to 2.70 will keep our bias for lower. We would suggest moving stops on short position now to 2.96, the 13-day MA. A break above may carry to 3.045 and suggest that a temporary bottom is in place. The target remains 2.409. The low, so far today, is right at first support of 2.70, but price action has not even come close to today's pivot price of 3.815, and the gap to the 13-day EMA has widened. Still, we feel a bottom may be close and caution against opening fresh short at these levels. Open interest is still saturated with short positions. Beware of a rush of selling and a higher close in the same session. These sort of "blow offs" often signal significant reversals.

source: KilduffReport.Com