{ Please note: The Energy OverView will not be published on Monday in observance of the Martin Luther King, Jr. Holiday. U.S. markets will be closed. Enjoy the long weekend!}
IntroView
The first of an expected dismal quarter of financial services companies earnings hit the tape this morning, with JP Morgan posting what CEO Jamie Dimon cast as "modestly disappointing." Trust us, folks, it is all down hill from here. The actual JPM earnings were in-line with estimates, but there were plenty of special circumstances and revenues generated the greatest part of the disappointment. It has been pointed out that many of the banks are trading below book value; sadly, we point out that the suspension of mark-to-market accounting has these seemingly bargain-basement stocks carrying assets that are not worth their stated values: hence, the markets correct price tag. Despite the flagging global financial sector -- RBS has announced a significant round of layoffs --, we noted the refusal of the Bank of England and ECB to cut rates, yesterday, which was most perplexing. While the US Federal Reserve did not come through with more measures at their last confab, more appears to be coming, after all. The stubbornly high unemployment has them, rightly, concerned. More measures could be announced at the January meeting. The new-year, new money rush into the markets should begin to ebb, and the real test of the market and its valuation will play out. The quality of the bank earnings will be a big factor.
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.
