MacroView

The markets are faltering this morning, not unexpectedly, on a reported impasse in the Greek debt negotiations and other sovereign debt market tumult. Bondholders are seeking to hold the line at a 50% haircut, while EU negotiators are pushing for more and more, to help fill the growing, yes growing, Greek debt problem. On this and a canceled Spanish agency auction, the euro is back below $1.30. Given the recent gains, the sell-off in the stock market is modest, and, absent the news, would likely be ascribed to profit-taking. The Republican presidential sideshow gives way to President Obama and the State of the Union address tonight. Interestingly, domestic energy production is going to be highlighted. Oil and gas output has risen markedly during his term, and we think we understand the Keystone Pipeline rejection now: it was a protectionist move! Pump American. All kidding aside, calls for a full-year extension of the payroll tax holiday and other agenda for what we can expect in the coming months. The FOMC begins its meetings today. The big question is whether QE3 gets trotted out now. Some have argued that it should saved for the next meeting to help alleviate the almost-certain, upcoming Greek crisis. We think they will wait. At 10:00AM this morning, the Richmond Fed reports, and it will set the tone for whether or not the economic activity seen in recent reports has slipped at all. The markets have made some terrific gains, but, at the same time, seem to be in  a very uneasy place.
 

Petroleum Markets

Price action has not struck out for any new territory so far today. Bracketed on its upper end as rising potential for supply disruption, with the lower extremities expressing hope that European debt resolve is at hand. A substantive break of either side does not appear imminent. There is perhaps, a slight bias towards quiescence as market participants seem to be shrugging off Iran's latest defiant reaction to a new round of sanctions Europe has planned as they will take effect until July. Negotiations with Greek bondholders suggest they would rather let default bring payment from default swaps than take a voluntary write down. Nevertheless, the euro is holding to the upper limits of its recent range, with the dollar, as measured by the index contract, holding under the psychological 80.00 level, providing some support to crude oil. With no major data due today, participants are probably looking to the President Obama's State of the Union message tonight, and stockpile reports for a directional cue. Unfortunately, we do not expect that his comments, European debt machinations or hassling over Iran's nuclear intentions will produce anything helpful towards that end. As Bette Davis counseled party goers in "All About Eve," "Fasten your seatbelts it's going to be a bumpy ride."


Petroleum Tech Talk     

Price action so far is contained within the lower reaches of the day's activity, and under $100.00. Still the day's low is over $1.00 above yesterday's. Consequently, we will keep our bias neutral until there is a meaningful break of 98.00 support or 103.37-103.74 resistance. A move over last week's double top at 102.24 may presage a test of of that mark, which if broken, may carry to congestion in the 105.00 area. A break there may generate enough momentum to carry to last year's highs near 115.00. A significant move below 97.40-97.70, particularly if it occurs on settlement, should open the way for a test of 90.52, the point where prices broke higher to 103.37.


Natural Gas           
 
We have been warning that a a reversal, possibly a violent one was coming; and yesterday it came. We thought it would probably come from a weather surprise, but instead it came from Chesapeake Energy, who announced that were reducing production because of low prices. This week, short covering activity has regained a little less than half of losses recorded over the past couple of week, leaving a good number of nervous shorts. So far today, price action is holding most of the ground regained, making them more nervous. But unless successive sessions bring a parade of producers announcing similar cutbacks, the rally should not run too far with key fundamental drivers of supply and weather still overwhelmingly bearish. Still, these sort of visceral reactions are difficult to gauge because they not only include short covering activity, but bargain hunters and speculative interests trying to catch the ride. We warn though that the music can and probably will stop very quickly.


Natural Gas Tech Talk     
            
We have been warning that a a reversal, possibly a violent one was coming; and yesterday it came. We thought it would probably come from a weather surprise, but instead it came from Chesapeake Energy, who announced that were reducing production because of low prices. This week, short covering activity has regained a little less than half of losses recorded over the past couple of week, leaving a good number of nervous shorts. So far today, price action is holding most of the ground regained, making them more nervous. But unless successive sessions bring a parade of producers announcing similar cutbacks, the rally should not run too far with key fundamental drivers of supply and weather still overwhelmingly bearish. Still, these sort of visceral reactions are difficult to gauge because they not only include short covering activity, but bargain hunters and speculative interests trying to catch the ride. We warn though that the music can and probably will stop very quickly.

source: KilduffReport.Com