MacroView

A lackluster day, yesterday, is giving way to another lackluster session, today. With Greece finance negotiators complaining that talks with the creditors are "tough" and still no sign of a deal, the potential for a flat-out bankruptcy grows, which seems to be capping any further gains for the markets. Overnight, there was a disappointing German industrial production number. This coincides with some of the softer numbers that we have been seeing in the US, save for last Friday's employment data. Chairman Bernanke goes before the Senate Banking Committee, later this morning; hopefully, the questions will probe beyond whether gold is a currency or not. It is notable that geopolitical concerns are not weighing more broadly on investor sentiment. Obviously, the situation surrounding Iran is well documented, Less publicized are countries in question that include Nigeria (oil), Sudan (oil), Iraq (no help from us on this one), and Egypt. Egypt, in particular, changes the dynamic in the Middle East for Israel, which looks increasingly isolated due to the unified front in Lebanon between Hamas and Hezzbollah. Does this emerging reality increase or lessen the chance of a unilateral Israeli strike on Iran's nuclear installations? We are not sure. We say, again, however, that the rhetoric and positioning is reminiscent of the run up to the Iraq war in 2003. We advise spending some capital to position for the increasingly likely event-risk (e.g. crude oil call options, equity market puts). Also, the New York Times chronicled well, today, the effects of all the various sanctions on Iran's economy. There is nothing to say that Iran, not Israel, could kick this whole thing off. Be prepared.
 

Petroleum Markets

The referee has to stop this fight. The potential for Greek GDP growth is being beaten to a pulp. The Troika, (EU/IMF/ECB), required Greece to tighten austerity measures even more in order to tap into the new bailout fund. Its creditors reaction to a Greek commitment to eliminate 15,000 government jobs in 2012 has been unenthusiastic, but prompted Greeks into the street. Moreover, the PSI deal has still not been finalized after discussions for months. Europe's conundrum will just not go away. Consequently, the euro is beginning to erode from recent highs to the dollar's benefit, weighing on crude oil prices. The temperature in the tinderbox Levant is rising in the aftermath of Chinese and Russian vetoes of sanctions against Syria in the Security Council last week. The US subsequently authorized new measures to isolate Iran, requiring financial institutions doing business in the United States to block and freeze transactions having a suspected link to Iran, and raising the ante on possible supply disruption. This somewhat offsets the European distraction, and thus, supportive to crude prices. Consequently, prices have held to a $1.15 range in overnight action on good volume as participants attempt to sort out which of these directional cues will eventually dominate.


Petroleum Tech Talk

Price action is narrowing into an ascending triangle, and holding within the down channel. While this formation extant it raises the suggestion that bulls' maintain the power to drive prices to the upper boundary, while bears' strength is slipping a bit, making an upside breakout possible. Keep an eye on volume though, if it increases with settlements near and over 97.00, there is a good possibility that upside momentum may gather. But if volume is tepid then this will probably peter out to a continuation pattern. Remember also that triangle patterns are notoriously unreliable, so a settlement below the recent low will show that bears still dominate and a test of 92.52 may be imminent. With the down trend channel intact we will keep our bias for lower, for that test to materialize before week's end.

Natural Gas

Gas prices remained steadfastly above recent lows despite an overwhelmingly bearish fundamental picture. Speculative interests have laid on a significant increase in length, to a six month high, through January 31st, subsequent to the 2.231 low posted January 23. With winter drawing to a close and stockpiles edging 3 Tcf, this may prove to be a very long shot. But with liquid byproducts' price tied to crude, it may prove to be a lottery ticket for some. Nevertheless, producer focus on ancillary output does not necessarily represent a reduction in future supply. The window for a hard hit of weather related demand is closing. The structure of the market may allow the possibility that a bottom has been positioned, but does not admit the potential substantial positive impetus.


Natural Gas Tech Talk
         
Interim support at 2.409 continues to hold, but the market struggles above 2.50 so we will keep our bias for lower until a new high above 2.844 is posted. It will necessarily require a change in the underlying fundamental structure to structure to generate enough momentum to carry over congestion near 3.132, particularly at this time of year. A meaningful break of 2.231 will open the way for the next target at 2.13, and then the 2002 low of 1.96. A move above 3.132 though will confirm that the move from the 2008 high of 13.694 has concluded at 2.231, and makes 3.255 vulnerable.

source: KilduffReport.Com