MacroView

Another new round of hearty agreement among euro zone leaders has the markets up again -- the failure of a definitive conclusion for the Greek debt crisis and soaring Portuguese interest rates notwithstanding. To be fair, an agreement was reached on the euro zone's rescue facility and all but the UK and the Czech Republic signed on to the budget scheme. Germany also backed off its request for an EU takeover of Greece's budget process. So, for now, hopeful analysis and optimism rules the day. The earnings season continues to have a majority of companies beating forecasts; the latest notable beat was UPS, which showed strong demand for shipping and gave a solid outlook for the remainder of the year. Housing price data will likely show more drag from that sector later this morning, and this remains the prime driver and impetus for QE3 regime from the Fed in the near future. Another looming market disruption event is the Iranian situation. There has been considerable speculation by high-level Israeli officials and Secretary of Defense Panetta indicated over the weekend that Iran is close to crossing a "red-line." For us, the rhetoric and attendant, extensive press coverage is very reminiscent of 2003 and the invasion of Iraq. We advise taking some nominal steps to protect against this event-risk that will grow in the coming months. It is a tail-risk that, unfortunately, increasingly, requires some tribute.
 

Petroleum Markets

The sentiment pendulum for oil prices has apparently swung back towards renewed optimism concerning Europe's travails. The single-currency has moved back towards 1.3200 to the expense of the dollar, making oil somewhat more attractive. This solace must be forming against the backdrop of the sixteenth summit producing resolution. The shade of rose coloring the glasses through which participants must be gazing has to be extraordinary to conclude that, just as Portugal is re-opening an old front in the crisis. In a bold glimpse of the painfully obvious, Ms. Merkel announced, "Greece's debt sustainability is especially bad." On the horizon, looms another casualty; Spain, who's unemployment rate reached 22.8%, at the end of last year, more than double the European average. Greater causality should probably be attached to Iran and its counter threat to cut off export to Europe if sanctions are enacted. Responsible, good neighbor Saudi Arabia has pledged to make up any shortfall in supply attendant on an interruption to a market they characterize as, "well supplied." The burden of the additional revenue flowing into their treasury they will be happy to bear.


Petroleum Tech Talk  
   
Prices have moved up over 10.00 again this session, erasing yesterday's losses. The high, so far, has just bested Friday's high, but the downward slope off the early January highs is holding. Recent downward pushes have concluded just above channel support so we will keep our bias neutral, for the moment. Prices are also above the 13-day EMA right now, but have not settled above in over a week. An overbought condition is building with the market unable to score new highs over the 103.37-103.74 resistance. The trading ranges established over two months remains unbroken. A substantive break of either 98.00 0r 102.00 should unleash a considerable amount of directional momentum.


Natural Gas       
     
Stockpile pulls have been considerably less than historic measures all winter and a few weeks of inventories possibly coming in at near normal withdrawal levels is not likely to have a major impact on a surplus heading towards another record come Spring. Short-covering activity is bleeding momentum. Last week's announcements of production constraints prompted holders of short positions to consider how much lower prices could extend if the phenomenon spread. Certainly, this concern will resurface when prices dip below 2.50 again. For the moment however, that particular source of urgency has diminished and consideration of season-ending totals should give potential buyers pause, particularly with inventories and production still running at record highs and no extreme cold on the horizon. Our early take on this week's EIA report is that a pull of about 119 bcf will be reported.


Natural Gas Tech Talk  
               
Front month gas hit a 10-year low of 2.231 last Monday. This will serve then as a temporary bottom. The slope of last week's rebound was unsustainable. Prices are hewing though to the upper reaches of the short covering activity. But the ability to reach 3.00 will require more exogenous events, like more production cuts but subsequent surges should produce less and less intensity with the weakest shorts now purged. 2.409 again provides interim support, but once broken the way is open for another challenge to 2.231, with possible momentum sufficient to reach the 2002 low of 1.96.

source: KilduffReport.Com