Saturday, June 30, 2012

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Friday, June 29, 2012

Crude oil appears to set a near term bottom

Crude oil for August delivery closed sharply higher on Friday gaining $7.27 to settle at $84.96 a barrel, above the 20 day moving average crossing at 82.52 confirming that a short term low has been posted. The high range close sets the stage for a steady to higher opening when Sunday's night session begins.

Stochastics and the RSI are oversold but are turning bullish signaling that sideways to higher prices are possible near term. If August renews this spring's decline, the 75% retracement level of the 2011-2012 rally crossing at 73.28 is the next downside target.

First resistance is the reaction high crossing at 87.32. Second resistance is the reaction high crossing at 92.52. First support is Thursday's low crossing at 77.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 73.28.

European leaders attending a two day summit agreed early Friday on a plan to use bailout funds to directly aid banks in Spain and Italy. The move in crude oil futures came as investors cheered the plan to help the euro zone's struggling banks.

The move, along with plans to bring Europe closer together, led to a surge in the euro, equities and commodities markets. The euro recently traded at $1.2684, up 1.9% from $1.2444 on Thursday. The Dow Jones Industrial Average recently traded 1.5% higher at 12,789.

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Crude Oil Spikes as Euro Leaders Relax Spains Debt Conditions

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CME: August crude oil prices traded sharply higher during the early morning hours, helped by an EU agreement aimed at relaxing borrowing costs in Spain and Italy. Risk assets across the globe appeared to embrace an agreement, and that has fostered ideas that global oil demand could turn higher. In addition to easing concerns over the European debt debacle, the crude oil market has also drafted support from tightening North Sea supply concerns.

COT: Crude oil was higher due to short covering overnight as it consolidates around the 62% retracement level of the 2009-2012 rally crossing at 80.33. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 82.31 are needed to confirm that a short term low has been posted. If August extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 73.28 is the next downside target. First resistance is the 20 day moving average crossing at 82.31. Second resistance is the reaction high crossing at 87.32. First support is Thursday's low crossing at 77.28. Second support is the 75% retracement level of the 2009-2011 rally crossing at 73.28.

Bloomberg: Crude posted its steepest intraday gain in eight months, increasing as much as 4.5 percent and trimming the biggest quarterly decline since the final three months of 2008. Oil gained after euro area leaders agreed to relax conditions on emergency loans for Spanish banks and possible help for Italy. Prices may advance after the European Union’s ban on the purchase, transport, financing and insurance of Iranian crude starts on July 1, a Bloomberg survey showed. Norway’s first industrywide energy strike since 2004 is in its sixth day.

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Thursday, June 28, 2012

Annual Energy Outlook 2012.....Three Cases for the Future of World Oil Prices

The Annual Energy Outlook 2012 (AEO2012) presents three alternative paths for world oil prices based on different production and economic assumptions. Among these cases, the real (constant 2010 dollars) oil price in 2035 ranges from $62 per barrel in the Low Oil Price case to $200 per barrel in the High Oil Price case, with the Reference case at $145 per barrel.

The oil price in AEO2012 is defined as the average price of light, low-sulfur crude oil delivered to Cushing, Oklahoma, which is similar to the price for light, sweet crude oil traded on the New York Mercantile Exchange (West Texas Intermediate, or WTI).

graph of Average annual world oil prices in three cases, as described in the article text

Factors considered in AEO2012 that affect supply, demand, and prices for petroleum in the long term are:

* World demand for petroleum and other liquids

* Organization of the Petroleum Exporting Countries (OPEC) investment and production decisions

* The economics of non OPEC petroleum supply

* The economics of other liquids supply

The Reference case of AEO2012 indicates a short term increase in oil price, returning to price parity with the Brent oil price by 2016, as current constraints on pipeline capacity between Cushing and the Gulf of Mexico are moderated.

The Low Oil Price case results in a projected oil price of $62 per barrel in 2035. The Low Oil Price case assumes that economic growth and demand for petroleum and other liquids in developing economies (which account for nearly all of the projected growth in world oil consumption in the Reference case) is reduced.

Specifically, the annual gross domestic product (GDP) growth for the world, excluding the mature market economies that are members of the Organization for Economic Cooperation and Development (OECD), is assumed to be 1.5 percentage points lower than that of the Reference case in 2035 (only a 3.5% annual increase from 2010 to 2035), which reduces their projected oil consumption in 2035 by 8 million barrels from the Reference case projection.

While non OECD oil consumption is more responsive to lower economic growth than to prices, oil use in the OECD region increases modestly in the Low Oil Price case. In this lower price case, the market power of OPEC producers is weakened, and they lose the ability to control prices and to limit production.

In contrast, the High Oil Price case assumes prices rise to $186 per barrel by 2017 (in 2010 dollars) and then increase to $200 per barrel by 2035. These higher prices result from higher demand for petroleum and other liquid fuels in non OECD regions than projected for the Reference case. In particular, the projected GDP growth rates for China and India are 1.0 percentage point higher in 2012 and 0.3 points higher in 2035 than the rates in the Reference Case.

Overall, in 2035 it is projected that 4 million barrels per day will be produced above the Reference Case level, even though projected oil consumption in the mature, industrialized economies is reduced.

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Crude Oil Bulls Reeling From Lowest Close in 9 Months

Crude oil is bouncing back in Thursday evenings session from the lowest close in more then 9 months. But still trading well below strong resistance above the $80 level as European Union actions against Iran and a strike in Norway still prove unable to push crude through resistance. But the bulls hold out hope.

Crude oil closed lower on Thursday renewing this spring's decline. The low range close sets the stage for a steady to lower opening when Friday's night session begins. Stochastics and the RSI are oversold but are neutral to bearish signaling that sideways to lower prices are possible near term. If August extends this spring's decline, the 75% retracement level of the 2011-2012 rally crossing at 73.28 is the next downside target. Closes above the 20 day moving average crossing at 82.47 are needed to confirm that a low has been posted. First resistance is the 20 day moving average crossing at 82.47. Second resistance is the reaction high crossing at 87.32. First support is today's low crossing at 77.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 73.28.

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Natural gas closed lower on Thursday as it consolidated some of this month's rally. The mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI are overbought are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If July extends this month's rally, February's high crossing at 3.137 is the next upside target. Multiple closes below the 20 day moving average crossing at 2.524 are needed to confirm that a short term top has been posted. First resistance is Wednesday's high crossing at 2.975. Second resistance is February's high crossing at 3.137. First support is the 10 day moving average crossing at 2.667. Second support is the 20 day moving average crossing at 2.524.

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Gold closed lower on Thursday renewing the decline off this month's high. The low range close sets the stage for a steady to lower opening when this evenings session begins trading. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. If August extends last week's decline, May's low crossing at 1529.30 is the next downside target. Closes above the 20 day moving average crossing at 1601.90 are needed to temper the bearish outlook. First resistance is the 20 day moving average crossing at 1601.90. Second resistance is reaction high crossing at 1642.40. First support is the reaction low crossing at 1556.40. Second support is May's low crossing at 1529.30.

Using Standard Deviation & Probability to Trade Options

From guest blogger J.W. Jones.....

I recently discussed the ability to use implied volatility to calculate the probability of a successful outcome for any given option trade. To review briefly, the essential concepts a trader must understand in order to make use of this helpful metric include......

The prices of any given underlying can be considered to be distributed in a Gaussian distribution the classic bell shaped curve.

The width of the spread of these prices is reflected in the standard deviation of the individual underlying’s distribution curve.

Plus / minus one standard deviation from the mean will include 68% of the individual price points, two standard deviations will include 95%, and three standard deviations will include 99.7%

A specific numerical value for the annual standard deviation can be calculated using the implied volatility of the options using the formula: underlying price X implied volatility

This standard deviation can be adjusted for the specific time period under consideration by multiplying the value derived above by the square root of the number of days divided by 365

These derived values are immensely important for the options trader because they give definitive metrics against which the probability of a successful trade can be gauged. An essential point of understanding is that the derived standard deviation gives no information whatsoever on the direction of a potential move. It merely determines the probability of the occurrence of a move of a specific magnitude.

Here's J.W.'s complete post and charts for "Using Standard Deviation & Probability to Trade Options"

Crude Oil Market Commentary for Thursday Morning June 28th

CME: August crude oil prices waffled between gains and losses throughout the initial morning hours, amid uncertainty ahead of the EU summit and slowing global growth prospects. The outside market tone provided a modest drag for the crude oil, with global equity markets weaker and slight gains in the US dollar. Additionally, slowing growth concerns have offset concerns that North Sea supplies have come under added strain from an oil worker strike in Norway. August crude oil prices climbed to a new four day high in response to yesterday's EIA data that showed an inventory decline of 133,000 barrels last week. EIA crude stocks are 27.697 million barrels above year ago levels and 41.847 million barrels above the five year average. Crude oil imports for the week stood at 9.118 million barrels per day compared to 9.445 million barrels the previous week. The refinery operating rate was up 0.7% to 92.6%, which compares to 88.1% last year and the five year average of 88.55%.

COT: Crude oil was slightly lower overnight as it consolidates around the 62% retracement level of the 2009-2012 rally crossing at 80.33. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 82.56 are needed to confirm that a short term low has been posted. If August extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 73.28 is the next downside target. First resistance is the 20 day moving average crossing at 82.56. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2009-2011 rally crossing at 73.28.

In other crude oil trading news.....

Venezuela wants OPEC to set an oil price band of $80 to $120 a barrel to stem crude's recent tumble, seeking to revive a policy the cartel scrapped seven years ago.

France is considering a one off tax on the oil sector before the end of 2012 that would raise around 500 million euros ($623.55 million), helping depleted French coffers but hurting its struggling refining industry.

Brazil's state led oil company Petrobras said on Wednesday that May output rose 1.9 percent to an average of 2.60 million barrels a day of oil and natural gas equivalent (boepd) as offshore fields in Brazil restarted after maintenance shutdowns.

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Wednesday, June 27, 2012

Commodities Get a Boost From New "It Isn't That Bad" Data in the U.S.

Crude oil closed higher due to short covering on Wednesday as it consolidates some of this spring's decline. The high range close sets the stage for a steady to higher opening when Thursday's night session begins. Stochastics and the RSI are oversold and are turning neutral to bullish signaling that a low might be in or is near. Closes above the 20 day moving average crossing at 82.92 are needed to confirm that a low has been posted. If August extends this spring's decline, the 75% retracement level of the 2011-2012 rally crossing at 73.28 is the next downside target. First resistance is the 20 day moving average crossing at 82.92. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2011-2012 rally crossing at 73.28.

Natural gas closed higher on Wednesday as it extended this month's rally. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If July extends this month's rally, February's high crossing at 3.104 is the next upside target. Multiple closes below the 20 day moving average crossing at 2.446 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 2.946. Second resistance is February's high crossing at 3.104. First support is the 10 day moving average crossing at 2.610. Second support is the 20 day moving average crossing at 2.466.

Gold closed higher on Wednesday and the high range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. If August extends last week's decline, May's low crossing at 1529.30 is the next downside target. Closes above the 20 day moving average crossing at 1602.30 are needed to temper the bearish outlook. First resistance is the 20 day moving average crossing at 1602.30. Second resistance is reaction high crossing at 1642.40. First support is the reaction low crossing at 1556.40. Second support is May's low crossing at 1529.30.

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SABIC and ExxonMobil to Proceed with Specialty Elastomers Project at Al-Jubail

Saudi Basic Industries Corporation (SABIC) and affiliates of ExxonMobil announced today they will construct a world scale specialty elastomers facility at the Al-Jubail Petrochemical Company (Kemya) manufacturing joint venture.

The facility will be integrated with the existing Jubail complex and is expected to be completed in 2015. The companies have approved the next stage of project development, engineering, procurement and construction (EPC).

The facility will have the capacity to produce up to 400,000 tonnes per year of rubber. Including halobutyl, styrene butadiene, polybutadiene, and ethylene propylene diene monomer (EPDM) rubbers, thermoplastic specialty polymers, and carbon black to serve local markets, the Middle East and Asia. Kemya has awarded the EPC contract for the elastomers facility to Technip, Tecnicas Reunidas and Daelim.

Kemya is a 50-50 joint venture between SABIC and Exxon Chemical Arabia Inc., an affiliate of ExxonMobil Chemical Company. The two companies have collaborated closely since 1980 when they established the joint venture, which produces polyethylene, ethylene, and propylene. The new synthetic rubber project represents a significant broadening of Kemya’s product portfolio.

Find out more about this venture at ExxonMobils Newsroom.

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National Oilwell Varco Completes Wilson Acquisition

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National Oilwell Varco, Inc. (NYSE:NOV) announced the closing of its previously announced acquisition of Wilson distribution business segment from Schlumberger Limited (NYSE:SLB). Wilson is a leading distributor of pipe, valves and fittings as well as mill, tool and safety products and services.

Pete Miller, Chairman, President and CEO of National Oilwell Varco, stated “We are happy to welcome Wilson’s employees to the National Oilwell Varco family and look forward to continuing the excellent service and products NOV and Wilson have to offer our customers.”

National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, the provision of oilfield services, and supply chain integration services to the upstream oil and gas industry.

Statements made in this press release that are forward-looking in nature are intended to be "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and may involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to documents filed by National Oilwell Varco with the Securities and Exchange Commission, including the Annual Report on Form 10-K, which identify significant risk factors which could cause actual results to differ from those contained in the forward looking statements.

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Crude Oil Traders Whisper....U.S. Inventories on the Rise

CME: August crude oil prices trended lower throughout the overnight and initial morning hours. Traders noted that some of the late day advance yesterday was tempered by private industry data that suggesting that U.S. crude stocks might have unexpectedly increased last week. The market also appears to be under a degree of pressure in front of this week's EU summit, which is largely expected to show little progress in resolving the European debt crisis. The crude oil market garnered support in yesterday's session from mounting concerns over a tightening North Sea supply situation.

COT: August crude oil was slightly lower overnight as it consolidates below the 62% retracement level of the 2009-2012 rally crossing at 80.33. Stochastics and the RSI are oversold but remain neutral to bearish signaling that additional weakness is possible near term. If August extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 73.28 is the next downside target. Closes above the 20 day moving average crossing at 82.86 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 82.86. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2009-2011 rally crossing at 73.28.

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Tuesday, June 26, 2012

Strong Resistance at 80.33 Proving Difficult for the Crude Oil Bulls

Crude oil closed higher due to short covering on Tuesday as it consolidates below the 62% retracement level of the 2011-2012 rally crossing at 80.33. The high range close sets the stage for a steady to higher opening when Wednesday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If August extends this spring's decline, the 75% retracement level of the 2011-2012 rally crossing at 73.28 is the next downside target. Closes above the 20 day moving average crossing at 83.31 are needed to confirm that a low has been posted. First resistance is the 20 day moving average crossing at 83.31. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2011-2012 rally crossing at 73.28.

Natural gas closed higher on Tuesday as it extended this month's rally. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are becoming overbought but remain bullish signaling that sideways to higher prices are possible near term. If July extends this month's rally, May's high crossing at 2.838 is the next upside target. Multiple closes below the 20 day moving average crossing at 2.449 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 2.778. Second resistance is May's high crossing at 2.838. First support is the 20 day moving average crossing at 2.449. Second support is this month's low crossing at 2.168.

Gold closed lower on Tuesday and poised to renew the decline off last week's high. The low range close sets the stage for a steady to lower opening when Wednesday's night session begins trading. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If August extends last week's decline, May's low crossing at 1529.30 is the next downside target. Closes above the 10 day moving average crossing at 1602.60 are needed to temper the bearish outlook. First resistance is the 10 day moving average crossing at 1602.60. Second resistance is reaction high crossing at 1642.40. First support is the reaction low crossing at 1556.40. Second support is May's low crossing at 1529.30.

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CME Recap Energy Market Report For Tuesday June 26th

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August crude oil prices registered an inside day trading range that was slightly higher on the session. The market spent most of the session within a tight trading range, despite fractional improvement in outside market sentiment.

Early support for the market came from gains in Brent crude oil and from expectations that US weekly crude stocks drew down last week. Prices took a negative turn in the wake of US economic data that showed Consumer Confidence falling by more than expected in June.

Some traders pointed to gains in Brent crude oil and concerns over a workers' strike in Norway that could tighten up near term supply as a force providing a late morning turnaround. As a result, the price differential between Brent and WTI crude oil increased by nearly $2.00 on the session.

Expectations for this week's EIA crude oil report are for a draw in the range of 750,000 to 1.0 million barrels.

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Drop in U.S. Gasoline Prices Reflects Decline in Crude Oil Costs

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Since reaching a recent peak of $3.94 per gallon on April 2, the average retail price U.S. drivers paid for gasoline has fallen for 12 weeks in a row to $3.44 per gallon, according to EIA's weekly motor fuel survey. The drop in gasoline prices largely reflects the decline in crude oil prices (see chart below), which have historically comprised the biggest part of the pump price.

The national average price for regular unleaded gasoline fell 50 cents per gallon over the 12-week period, while the spot prices for West Texas Intermediate (WTI) crude oil declined the equivalent of 63 cents per gallon and Brent crude oil fell the equivalent of 81 cents per gallon. WTI and Brent are among the world's leading oil pricing benchmarks.

graph of Weekly retail gasoline and spot crude oil prices, March 2012 - June 2012, as described in the article text

If crude oil price changes are fully passed through to consumers, for every $1 per barrel change in crude oil prices, consumers could expect to see a 2.4-cent-per-gallon change in retail gasoline prices. However, EIA analysis indicates that generally about 50% of the crude oil price change is usually passed on to consumers at the pump within two weeks, and 80% is generally passed on within four weeks. Gasoline prices are also sensitive to conditions affecting particular regional markets, such as significant refinery outages on the West Coast this spring that led to higher prices in that area.

The price of crude oil accounts for about two thirds of the retail price of gasoline. Refining costs, distribution and marketing costs, and state and federal taxes make up the rest of the retail gasoline price. Pump prices vary by region, with some drivers paying more or less for gasoline than the national average depending on where they live (see chart below).

graph of U.S. regional average gasoline prices, 2012 peack price and most recent weekly price, as described in the article text

Concerns that a weak global economy will lead to reduced petroleum demand has contributed to lower crude oil prices. However, part of the reason retail gasoline prices have not dropped as much as crude oil prices is that U.S. gasoline demand has started to show some growth in recent months. During the first quarter of 2012, monthly EIA data shows U.S. gasoline demand was down about 1.4% from the first quarter of last year. However, since the gasoline price peak, weekly EIA data indicate that gasoline demand has started to strengthen, with demand down only 0.9% in April compared to a year earlier and up by 0.2% in May.

The current 12 week drop in gasoline costs is the second longest period of declining pump prices recorded by EIA's weekly fuel price survey since the drop at the end of 2008, when pump prices fell for 15 straight weeks.

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Is this technical support for oil or a lift on tensions in Syria?

20 Survival Skills for the Crude Oil Trader

CME: August crude oil prices took a slightly higher track during the initial morning hours, helped by a modest lift in outside market sentiment and expectations that week's EIA inventory report will show a draw. August Brent crude oil broke out to a new three day high during the initial morning hours, supported by a modest level of short covering, as well as expectations that US crude oil inventories drew down last week. The crude oil market also appears to be getting a modest lift from rising tensions in Syria. Meanwhile, the supply situation looks more than ample given soft economic data that continues to weigh on demand prospects and as Saudi Arabia continues their active production pace.

COT: August crude oil was slightly higher overnight as it consolidates some of this year's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that additional weakness is possible near term. If August extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 73.28 is the next downside target. Closes above the 20 day moving average crossing at 83.31 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 83.31. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2009-2011 rally crossing at 73.28.

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Monday, June 25, 2012

Crude Oil Bears Supported by Lack of Confidence in European Debt Crisis and China Numbers

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Crude oil closed lower on Monday as it consolidates below the 62% retracement level of the 2011-2012 rally crossing at 80.33. The mid range close sets the stage for a steady opening when Tuesday's night session begins. Stochastics and the RSI are diverging but are neutral to bearish signaling that sideways to lower prices are possible near term. If August extends this spring's decline, the 75% retracement level of the 2011-2012 rally crossing at 73.28 is the next downside target. Closes above the 20 day moving average crossing at 83.91 are needed to confirm that a low has been posted. First resistance is the 20 day moving average crossing at 83.91. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2011-2012 rally crossing at 73.28.

Natural gas closed higher on Monday as it extended this month's rally. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term. If July extends this month's rally, May's high crossing at 2.838 is the next upside target. Multiple closes below the 20 day moving average crossing at 2.434 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 2.731. Second resistance is May's high crossing at 2.838. First support is the 20 day moving average crossing at 2.434. Second support is this month's low crossing at 2.168.

Gold closed higher due to short covering on Monday as it consolidates some of this month's decline. The high range close sets the stage for a steady to higher opening when Tuesday's night session begins trading. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If August extends last week's decline, May's low crossing at 1529.30 is the next downside target. Closes above the 10 day moving average crossing at 1606.40 are needed to temper the bearish outlook. First resistance is the 10 day moving average crossing at 1606.40. Second resistance is reaction high crossing at 1642.40. First support is the reaction low crossing at 1556.40. Second support is May's low crossing at 1529.30.

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Crude Oil Opens Lower as Debby Loses Focus

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CME: August crude oil prices grinded higher during the Sunday evening trade but reversed course throughout the initial morning hours. It seemed that ongoing concerns over weakening global growth and European debt issues weighed on oil demand prospects. Fears over weakening demand took some of the focus away from Tropical Storm Debby in the Gulf of Mexico, which shuttered nearly 25% of oil and gas operations in the region. The Commitments of Traders Futures and Options report as of June 19th showed non commercial traders were net long 192,059 contracts, a decrease of 8,943. Non commercial and nonreportable traders combined held a net long position of 198,111 contracts, for a decrease of 15,830 in their net long positioning.

COT: August crude oil was lower overnight as it extends this year's decline. Stochastics and the RSI are oversold but remain bearish signaling that additional weakness is possible near term. If August extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 73.28 is the next downside target. Closes above the 20 day moving average crossing at 83.89 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 83.89. Second resistance is the reaction high crossing at 87.32. First support is last Friday's low crossing at 77.56. Second support is the 75% retracement level of the 2009-2011 rally crossing at 73.28.

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Saturday, June 23, 2012

ONG: Crude Oil Weekly Technical Outlook Saturday June 23rd

Gold and Silver on the Verge of Something Spectacular

From the staff at ONG......

Crude oil's decline resumed last week and dropped to as low as 77.56 before recovering mildly. As long as 84.34 resistance holds, deeper fall is still expected for 74.95 key support next. Though, we'd start to look for reversal signal below there. Meanwhile, break of 84.34 will argue that a short term bottom is at least formed, with bullish convergence condition in 4 hours MACD. In such case, stronger rebound should be seen back to 90 psychological level.

In the bigger picture, price actions from 114.84 are developing into a three wave consolidation pattern with fall from 110.55 as the third leg. Deeper fall should eventually be seen to 74.95 low and possibly below. Though, we'd likely see strong support from 64.23 cluster level, 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise. Hence we'll look for reversal signal below 74.95.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex crude oil continuous contract 4 hour, daily, weekly and monthly charts

Gold Still at Risk of a Large Downward Move Before the Rally

Friday, June 22, 2012

North American Spot Crude Oil Benchmarks Likely Diverging Due to Bottlenecks

Gold and Silver on the Verge of Something Spectacular

West Texas Intermediate at Cushing, Oklahoma (WTI Cushing), a light, sweet crude grade, is North America's most closely observed crude oil price benchmark and the underlying commodity of the NYMEX crude futures contract. Until 2008, all North American crude grades broadly tracked fluctuations in WTI Cushing prices and were clustered within about $8 per barrel of the WTI Cushing price. Pricing differences between crude grades were largely explained by the different quality characteristics of the crude oil in each location and transportation costs to Cushing, the delivery point of the NYMEX contract.

Since 2008, however, the price differences between WTI Cushing and other North American crude oil benchmarks have increased sharply (see chart below). In addition to WTI, other crude grades have emerged as alternative benchmarks. In particular, the Argus Sour Crude Price Index (ASCI), a weighted average of prices for several offshore Gulf of Mexico sour crude grades, has become the benchmark or reference used for assessing the price of several imported grades sold on a long-term contract basis, including Saudi Arabian and Kuwaiti crude grades.

graph of spot crude price minus spot WTI (Cushing, OK) crude oil prices, January 1, 2005 - June 19, 2012, as described in the article text

Transportation constraints in the wake of rising production from inland fields in Canada, North Dakota, and Texas are one of the main drivers of the growing price discrepancy between crude grades since 2008. Limited pipeline capacity has made it difficult to bring crude oil out of the center of the continent, lowering all the affected benchmarks compared to prices outside the area. But within the constrained area, prices have also diverged from each other, reflecting local transmission bottlenecks within the larger constrained area. For example, crude oil benchmarks for the Bakken, Western Canada, and West Texas Sour (Midland, Texas) have traded at a discount to WTI Cushing. Rising production in the Bakken and West Texas have exacerbated these price differences. Outside the constrained areas, benchmarks like Louisiana Light Sweet, Alaska North Slope, and Mars Blend in the Gulf of Mexico reflect premiums to WTI Cushing, sometimes significant.

The phrase "transportation constraints" refers to a broad range of logistic issues, with inadequate pipeline capacity being the most common issue. However, EIA is not aware of any crude oil production capacity being shut in because of a lack of capacity to move the oil. In the short term, production surges and/or pipeline shutdowns force oil producers to compete with each other for more expensive transport options: rail and then truck. In the longer term, additional transportation capacity (rail and pipeline) is likely to be built, which should lower the cost of transporting the oil to markets.

Some North American crude oil benchmark locations are identified in the map below.

map of select crude oil price points in North America, as described in the article text
Source: U.S. Energy Information Administration. 


Gold Still at Risk of a Large Downward Move Before the Rally

Thursday, June 21, 2012

Gold Still at Risk of a Large Downward Move Before the Rally

Gold has been busy consolidating in what I believe will be a 13 Fibonacci month Primary wave 4 correction. The Gold bull market I’ve been following since 2001 is a likely 13 year bull cycle that will end in 2013 or 2014 depending on how you count. This current correction pattern is working off a 34 Fibonacci month rally that took Gold from 681 to 1923 at its ultimate highs. Last fall I warned about the parabolic run likely ending in the 1908 ranges and for investors to position themselves accordingly.

Today we have Gold trading around 1600 and our recent forecast in May was for a rally into Mid June topping around 1620-1650 ranges in US Dollars. The intermediate forecast still calls for a possible drop to 1445-1455 ranges this summer, the same figures I gave out on TheStreet.Com interview last September for a Primary wave 4 low.

Only a close and a strong move over 1650 will eliminate the downside risk in my opinion. Below we can see a weekly chart showing the 34 week moving average line as well as the obvious downtrend line. The 34 week moving average line acted as support during the Primary wave 3 rally from 681-1923. It now is acting as a resistance ceiling to break through, and I don’t think we will until this fall. The likely cyclical lows for this Gold correction will be in the October window and investors should make sure they are positioned long by that time.

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U.S. Dollar Safe Haven Demand Sends Crude Oil Lower....Much Lower

Gold and Silver on the Verge of Something Spectacular

Crude oil [August contract] closed down $2.93 a barrel at $78.52 today. Prices closed nearer the session low today and hit another fresh 8 1/2 month low. A bearish economic report out of China combined with a stronger U.S. dollar index and a downbeat assessment of the U.S. economy by the Federal Reserve combined to sink the crude oil market agaon today. The crude bears have the solid overall near term technical advantage.

Natural gas closed up 6.6 cents at $2.621 today. Prices closed near mid range today and saw short covering. Bulls and bears are on a level near term technical playing field.

Gold futures closed down $50.00 an ounce at $1,566.00 today. Prices closed near the session low and closed at a fresh three week low close as the bulls have faded badly. The key “outside markets” were fully bearish for gold today, as the U.S. dollar index was solidly higher while crude oil prices were sharply lower. Gold market bears have regained the overall near term technical advantage.

The September U.S. dollar index closed up 76 points at 82.51 today. Prices closed near the session high today and saw support on fresh safe haven demand after the FOMC's downbeat assessment of the U.S. economy and some weak China economic data. Bulls have the overall near term technical advantage and regained upside momentum today

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Wednesday, June 20, 2012

Gold and Silver on the Verge of Something Spectacular

Gold and silver have taken more of a back seat over the past 12 months because of their lack of performance after topping out in 2011. Since then prices have been trading sideways/lower with declining volume. The price action is actually very bullish from a technical standpoint. My chart analysis and forward looking forecasts show $3,000 ish for gold and $90 ish for silver in the next 18-24 months.

Now don’t get too excited yet as there is another point of view to ponder....

My non technical outlook is more of a contrarian thought and worth thinking about as it may unfold and catch many gold bugs and investors off guard costing them a good chunk of their life savings. While I could write a detailed report with my thinking, analysis and possible outcomes I decided to keep it simple and to the point for you.

Bullish Case: Euro land starts to crumble, stocks fall sharply sending money into gold and silver which are trading at these major support levels which in the past triggered multi month rallies.

Bearish Case: Greece, Spain and Italy worth through their issues over the next few months while metals bounce around or drift higher because of uncertainty. But once things have been sorted out and financial stability (of some sort) has been created and the END OF THE FINANCIAL COLLAPSE has been avoided money will no longer want to be in precious metals but rather move into risk on.

Take a look at the gold and silver charts below for an idea of what may happen and where support levels are if we do see money start to rotate out of metals in the next 3-6 months.

Gold Forecast
Silver Forecast
Over the next few months things will slowly start to unfold and shed some light on what the next big move is likely going to happen to gold and silver.

The price movements we have seen for both gold and silver indicate were are just warming up for something really big to happen. It could be a massive parabolic rally to ridiculous new highs in 2012/2013 or it could be a huge unwinding of the safe havens as countries sort out their issues and the big money starts moving out of metals and into currencies and stocks.

Only time will tell and that is why I analyze the market multiple times per week to stay on top of both long term and short term trends.

To keep up with Chris Vermeulen and his thoughts on current trends and trades for gold, silver, oil, bonds and the stocks market checkout The Traders Video Playbook


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Crude Oil Breaks Through Strong Support Giving Crude Bears Downside Momentum

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Crude oil [August contract now] closed down $3.18 a barrel at $81.16 today. Prices closed near the session low today and hit a fresh 8 1/2 month low. A bearish weekly DOE report, a firmer U.S. dollar index and a downbeat assessment of the U.S. economy by the Federal Reserve combined to sink the crude oil market today. The crude bears have the solid overall near term technical advantage and gained fresh downside momentum today.

Natural gas closed down 1 1/2 cents at $2.559 today. Prices closed nearer the session low today after hitting a fresh four week high early on. Bulls have gained upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are on a level near term technical playing field.

Gold futures closed down $7.00 an ounce at $1,616.00 today in volatile trading. Prices closed nearer the session high and moved well up from the daily low of $1,590.50 following the FOMC statement. After an initial bearish reaction to the FOMC statement, traders digested the wording and reckoned the Fed has indeed laid the groundwork for more aggressive easing of monetary policy in the near future. The key “outside markets” were bearish for gold today as the U.S. dollar index was near steady but up from lower levels early today.

The September U.S. dollar index closed up 22 points at 81.81 today. Prices closed nearer the session high today and saw support on some fresh safe haven demand after the FOMC's downbeat assessment of the U.S. economy. Bulls have the overall near term technical advantage but are fading as prices have been trending lower for nearly three weeks.

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The United Kingdom’s Natural Gas Supply Mix is Changing

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Natural gas production in the United Kingdom is trending down due to declines in production from that country's North Sea fields. Imports via pipeline connections with Europe as well as seaborne deliveries of liquefied natural gas (LNG) now account for more than half of the U.K.'s natural gas supply.

graph of U.K. natural gas supply mix, January 2007 - May 2012, as described in the article text

Here are some key findings underpinning supply trends.

U.K. Production

Natural gas production in the U.K. has been falling for years. Average monthly U.K. natural gas production has fallen from around 350 billion cubic feet (Bcf) per month in 2000 to less than 200 Bcf per month in 2011. Natural gas production in the U.K. declined 22% between 2010 and 2011. Natural gas reserves have been steadily declining since 1999 as well; older fields account for a significant volume of current natural gas production in the U.K. The vast majority of U.K. production comes from offshore fields, and in 2010, 85% of gross offshore production came from fields that had been producing for more than 10 years, and 39% of gross offshore natural gas production came from fields that started flowing natural gas prior to 1991.

graph of U.S. coal export destinations by region and by type, 2001-2011, as described in the article text

Pipeline Imports

U.K. annual pipeline imports from Norway rose significantly in recent years, up from just 36 Bcf in 2001 to 878 Bcf in 2010. Most of the growth since October 2006 is attributable to the Langeled Pipeline, which began service that month. Extending 725 miles through the North Sea, the Langeled Pipeline links the Nyhamna terminal in Norway via the Sleipner Riser platform in the North Sea to the Easington Gas Terminal in the U.K. From January 1, 2012 through May 17, 2012, imports from Norway on the Langeled Pipeline averaged about 2.5 billion cubic feet per day (Bcf/d). Earlier imports from Norway were directly from North Sea fields owned by Norway.

Since 2007, the U.K. has been a net importer of natural gas from Continental Europe via the Interconnector and BBL pipelines, as annual imports on these pipelines have exceeded annual exports. From January 1—May 17, 2012, net imports into the U.K. from Belgium and the Netherlands, together, have averaged about 1 Bcf/d. Natural gas flows between the U.K. and Belgium and the Netherlands vary depending on market conditions. When demand is peaking in the U.K., gas flows into the U.K.; when the U.K. is well-supplied with natural gas relative to demand, natural gas tends to flow into Europe from the U.K. Analysts can observe these changes daily; National Grid, the principal natural gas pipeline operator in the U.K., provides real-time estimates of natural gas flows at key import locations on its website.

LNG Imports

The U.K. has not been dependent on LNG for long. The first modern-era LNG terminal in the U.K.—the Isle of Grain terminal—began commercial service in the summer of 2005. LNG's role, however, has grown significantly since then. At times, LNG deliveries in the U.K. have provided up to 4 Bcf/d of total supply and accounted for 20% of the U.K.'s aggregate natural gas needs (see chart below). In the United States, only the New England region is as reliant on contributions from LNG to meet demand.

In 2011, total U.K. LNG imports exceeded 900 Bcf, with Qatar accounting for over 80% of U.K.'s LNG imports that year. Average daily LNG deliveries from re-gasification terminals have trailed off to 1.4 Bcf/d so far in 2012 (January 1 through May 17) compared with 2.7 Bcf/d for the same period in 2011. Since 2009, the South Hook terminal has received most of the LNG imports into the U.K. (see chart below).

graph of U.S. coal export destinations by region and by type, 2001-2011, as described in the article text

U.S. Crude Stocks Seen Down on Higher Runs, Lower Imports

U.S. crude oil stockpiles likely fell last week for the third straight week due to increased refinery utilization and lower imports, an expanded Reuters poll of analysts showed on Tuesday.

For Wednesday morning trading crude oil prices are near steady in early trading today. Trading has turned choppy but bears still have the overall near term technical advantage. In August Nymex crude, look for buy stops to reside just above resistance at $85.00 and then at this week's high of $85.89. Look for sell stops just below technical support at $83.00 and then at $82.50.

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Tuesday, June 19, 2012

Fed "Hopes" Giving Bulls Some Fresh Upside Near Term Technical Momentum

The U.S. stock indexes closed higher today as the bulls are gaining some fresh upside near term technical momentum. The market place was calmer and in more of a “risk on” mentality Tuesday following the weekend Greek elections that have at least temporarily assuaged the European Union debt and financial crisis.

There were reports Tuesday that Greece will form a new coalition government as soon as Wednesday. Traders and investors are awaiting the conclusion of the U.S. Federal Reserve's Federal Open Market Committee meeting and its statement Wednesday afternoon. The Fed is determining its next course of U.S. monetary policy. Recent downbeat U.S. data has led to growing expectations for further easing of U.S. monetary policy.

Most reckon the Fed will implement some form of fresh easing of U.S. monetary policy at this week's meeting. The key will be how aggressive the Fed will respond with fresh easing.

All quotes are August contracts being reported.....

Crude oil closed up $0.85 a barrel at $84.45 today. Prices closed nearer the session high today and saw short covering in a bear market. The lower U.S. dollar index was also bullish for crude today. The crude bears still have the solid overall near term technical advantage.

Natural gas closed down 8.4 cents at $2.584 today. Prices closed nearer the session low today and saw a corrective pullback from recent solid gains. Prices did hit a fresh four week high early on today. Bulls have gained good upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are on a level near term technical playing field.

Gold futures closed down $3.10 an ounce at $1,623.90 today. Prices closed near mid range today and saw some profit taking pressure from recent gains and some position evening ahead of Wednesday's FOMC results. The key “outside markets” were bullish for gold today as the U.S. dollar index was sharply lower and crude oil prices were higher. Gold market bulls have the slight near term technical advantage.

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Crude Oil Price Rises on Hopes Fed will Boost U.S. Economy

The price of crude oil is rising on hopes that the Federal Reserve will announce new measures to stimulate the U.S. economy.

U.S. West Texas Intermediate crude rose by 79 cents to $84.06 per barrel. Brent crude, which helps set the price for oil imported into the U.S., added 4 cents to $96.09.

The Fed holds a two day meeting that ends Wednesday, and in the past it has taken action to encourage Americans to spend and borrow. Many analysts think the struggles of the U.S. economy and Europe’s debt crisis will compel the Fed to say or unveil something to try to boost confidence.

Any sign that the Fed is willing to take action could lift oil prices, which have fallen sharply during the past six weeks over fears that growth in the global economy will stall.

“The market is building on a little optimism that they’ll do something,” said Peter Donovan, an oil broker with Vantage Trading in New York.....Read the entire post.

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CME Morning Crude Oil Market Report For Tuesday June 19th

August crude oil prices traded lower throughout the overnight and early morning hours but were able to turn positive heading into the US opening. It is possible that reports that G-20 leaders were boosting IMF's funding, along with hopes that further stimulus could come from a two day FOMC meeting and potential interest rate cut by the ECB has offered a modest lift to crude oil.

August Brent crude oil registered a new 17 month low this morning, and it too has been able to climb back into positive territory. It is also possible that slow progress in talks between world powers over Iran's nuclear program in Moscow have presented a measure of support to the crude oil market. Negotiations over easing sanctions on Iran made little progress yesterday and seemed to come with tough language.

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Monday, June 18, 2012

Just Like the Good Old Days....Crude Oil Down, Natural Gas Up

Crude oil closed down $1.05 a barrel at $83.00 today. Prices closed nearer the session low today and scored a bearish “outside day” down on the daily bar chart. The stronger U.S. dollar index weighed on crude oil prices today. The crude bears still have the solid overall near term technical advantage. There are still no early technical clues to suggest a market bottom is close at hand.

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Natural gas closed up 17.7 cents at $2.644 today. Prices closed near the session high again today and hit a fresh four week high. Short covering and bargain hunting were featured again today. Bulls have gained good upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are now on a level near term technical playing field.

Today’s MarketClub Trade Triangles

Gold futures closed down $0.70 an ounce at $1,627.30 today. Prices closed nearer the session high today on some chart consolidation following recent gains. The key “outside markets” were bearish for gold today as the U.S. dollar index was higher and crude oil prices were lower. Yet, gold managed to have only small losses, which does suggest safe haven demand for gold is present. Gold market bulls have the slight near term technical advantage.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Chesapeake's New Chair to be Named

Chesapeake Energy's new chairman and additional directors will be named by Friday, reports CNBC's Kate Kelly.



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Working Crude Oil Storage Capacity at Cushing, Oklahoma Rises

As of March 31, 2012 working crude oil storage capacity at the Cushing, Oklahoma storage and trading hub was 61.9 million barrels, an increase of 6.9 million barrels (13%) from September 30, 2011 and 13.9 million barrels (29%) from a year earlier, as reported in EIA's recently released report on Working and Net Available Shell Storage Capacity.

Utilization of working storage capacity on March 31, 2012 was 64%, an increase from the 53% observed in September 2011, but lower than the 86% observed on March 31, 2011. The report also noted that operating shell storage capacity increased 8.1 million barrels (12%) from September 30, 2011 to reach 74.6 million barrels.

Both storage capacity and the level of inventories held at Cushing are closely watched market indicators, as Cushing is the market hub for West Texas Intermediate (WTI) crude oil that is the basis for crude oil futures contracts traded on the New York Mercantile Exchange. High inventory levels at Cushing have been a symptom of transportation constraints that have resulted in WTI trading at a discount relative to comparable grades of crude oil since early 2011.

graph of Crude oil storage capacity and inventories at Cushing, Oklahoma




Growing volumes of U.S. crude oil production, along with a higher level of imports from Canada, have helped contributed to the record levels of inventories at Cushing. Increased flows of crude oil from these two sources, along with expectations for future increases, have consequently created the need for additional storage at the hub.

Weekly data show that as of June 1, 2012, crude oil inventories held at Cushing were 47.8 million barrels, the highest level on record and very close to total working storage capacity as of March 2011. However, due to the growth in storage capacity between March 2011 and March 2012, the utilization rate for working storage capacity at Cushing has actually declined over the past 14 months.

SP 500 and Crude Oil Monday Morning Madness

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Crude oil prices are trading lower in early trading today. Trading has turned choppy but bears still have the overall near term technical advantage. In July crude, look for buy stops to reside just above resistance at $84.00 and then at $85.00. Look for sell stops just below technical support at $83.00 and then at $82.50.

In S&P 500 futures Prices hit a fresh four week high overnight. The shorter term moving averages (4-, 9- and 18- day) are bullish early today. The 4 day moving average is above the 9 day and 18 day. The 9 day is above the 18 day moving average. Short term oscillators (RSI, slow stochastics) are neutral to bullish early today.

Today, shorter term technical resistance comes in at the overnight high of 1,347.00 and then at 1,360.00. Buy stops likely reside just above those levels. Downside support for active traders today is located at Friday's low of 1,324.40 and then at 1,305.80. Sell stops are likely located just below those levels.

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Friday, June 15, 2012

The Facts Behind Oil Prices

Posted courtesy of Gary Morsches at the CME Group....

Following up on my post about the benefits of speculation, and what really impacts the price of oil and gasoline, it’s worth sharing this infographic we designed to visually break down the elements that determine the price of energy. As you can see, it’s a mixture of many factors, each of which carries a varying amount of influence depending on current economic and geopolitical conditions.



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Thursday, June 14, 2012

Crude Oil, Natural Gas and Gold Market Commentary For Thursday Evening June 14th

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Crude oil closed higher on Thursday as it consolidates above the 87% retracement level of the 2011-2012 rally crossing at 81.36. The high range close sets the stage for a steady to higher opening when Friday's night session begins. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. If July renews this spring's decline, last October's low crossing at 77.05 is the next downside target. Closes above the 20 day moving average crossing at 87.21 are needed to confirm that a low has been posted. First resistance is the reaction high crossing at 87.03. Second resistance is the 20 day moving average crossing at 87.21. First support is Tuesday's low crossing at 81.07. Second support is last October's low crossing at 77.05.

Natural gas closed sharply higher on Thursday and above the 20 day moving average crossing at 2.487 signaling that a double bottom with April's low appears to have been posted. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are oversold and are turning neutral to bullish with today's rally hinting that sideways to higher prices are possible near term. Multiple closes above the 20 day moving average crossing at 2.487 are needed to confirm that a short term low has been posted. If July renews the decline off May's high, April's low crossing at 2.136 is the next downside target. First resistance is today's high crossing at 2.522. Second resistance is May's high crossing at 2.838. First support is today's low crossing at 2.168. Second support is April's low crossing at 2.136.

Gold closed higher on Thursday as it extends this week's rally off last Friday's low. The high range close sets the stage for a steady to higher opening when Friday's night session begins trading. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. If August renews the rally off May's low, April's high crossing at 1674.30 is the next upside target. Closes below the 20 day moving average crossing at 1591.10 are needed to confirm that a short term top has been posted. First resistance is the reaction high crossing at 1632.00. Second resistance is May's high crossing at 1674.30. First support is the 20 day moving average crossing at 1591.10. Second support is May's low crossing at 1529.30.

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Natural Gas Steals The Headlines on EIA Injection Report

Today's story in Nat Gas is all about the weekly EIA injection report which came in below all of the market expectations today sending the market into an instant short covering rally that is still underway as of this writing. The inventory injection was below the market consensus as well as below last year and the five year average for the same week.

So far the weekly injections have underperformed for the entire injection season so far. This pattern will have to continue to avoid storage from hitting maximum capacity limitations before the end of the injection season (normally around the end of November to early December). Keep in mind in the short term the market will have limited upside as rising prices will eliminate the economic advantage of Nat Gas over coal for power generation.

This switching has contributed strongly to injections underperforming for the last three months. I still view this market as trading most of the time in the $2.25 to $2.50/mmbtu trading range.

Today's EIA report was bullish from the perspective that the injection was below the consensus level and bullish when compared to last year and the five year average injection level for the same week. The EIA injection was 7 BCF below the consensus (74 BCF) and below last year's injection and below the injection level for the five year average for the same week.

The net injection of 67 BCF was less than my model forecast (70 BCF) this week and at the very low end of the range of market projections. The inventory surplus narrowed modestly versus both last year and the more normal five year average also. The current inventory level is now 666 BCF above the five year average.

Video

CNBC's Sharon Epperson discusses todays spike in natural gas prices and the day's activity in the commodities markets and looks at where crude oil and precious metals are likely headed tomorrow.


CME: Simplest Way to Describe Oil Market....Uncertainty

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The simplest way to describe the oil markets as well as the broader risk asset markets is in one word "uncertainty". Uncertainty is coming from many different directions all at the same time. June is the month of events and thus the month of above normal uncertainty. In the last five trading sessions oil prices have reversed direction each day demonstrating the lack of conviction by the majority of market participants. Each 30 second news snippet hitting the media airwaves sends the market in different directions as traders and investors try to sort out what is the next issue to emerge from the growing risk pyramid.

Today the first of the many June events will become clearer as OPEC decides what their forward production levels will be. There has been a group of OPEC members or the hawks...Iran & Venezuela in particular who are calling for a cut in production to bolster prices after about a $25/bbl decline over the last month or so. On the other hand the doves led by Saudi Arabia are looking to actually increase the official production ceiling and were showing no signs of agreeing to a cut ahead of the official meeting. History has told us that the position the Saudi's take heading into the meeting is generally the outcome of the meeting. All signs suggest history will repeat itself today and there will be no cuts in production with the official ceiling staying the same of raised marginally. I am expecting a rollover of the existing agreement.

This seems to be the outcome that the consensus of market participants has been expecting for the last several weeks and if the expectations are met I do not expect any major move in oil prices after the meeting communiqué is issued solely based on the outcome of the OPEC meeting. Oil prices are likely to remain in the $80 to $90/bbl range basis WTI and $95 to $105/bbl trading range basis Brent until the next round of events hit staring on Sunday. The outcome of the OPEC meeting...especially one that is likely to be a status quo meeting is certainly not the most important issue facing all of the risk markets in the short term and certainly not the main price driver for oil or the major risk asset markets.....Read the entire report.

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Wednesday, June 13, 2012

Crude Oil Continues in Trading Range Slightly Above 87% Retracement

Crude oil closed lower on Wednesday but remains above the 87% retracement level of the 2011-2012 rally crossing at 81.36. The low range close sets the stage for a steady to lower opening when Thursday's night session begins. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. If July renews this spring's decline, last October's low crossing at 77.05 is the next downside target. Closes above the 20 day moving average crossing at 87.66 are needed to confirm that a low has been posted. First resistance is the reaction high crossing at 87.03. Second resistance is the 20 day moving average crossing at 87.66. First support is Tuesday's low crossing at 81.07. Second support is last October's low crossing at 77.05.

Natural gas closed lower on Wednesday as it extended the decline off May's high. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July renews the decline off May's high, April's low crossing at 2.136 is the next downside target. Closes above the 20 day moving average crossing at 2.496 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 2.496. Second resistance is May's high crossing at 2.838. First support is Tuesday's low crossing at 2.173. Second support is April's low crossing at 2.136.

Gold closed higher on Wednesday as it extends the rebound off last Friday's low. The high range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term. If August renews the rally off May's low, April's high crossing at 1674.30 is the next upside target. Closes below the 20 day moving average crossing at 1586.90 are needed to confirm that a short term top has been posted. First resistance is the reaction high crossing at 1632.00. Second resistance is May's high crossing at 1674.30. First support is the 20 day moving average crossing at 1586.90. Second support is May's low crossing at 1529.30.

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CME: Crude Oil Steady Ahead of EIA Inventory Report

Crude oil prices have been steady over the last twenty four hours after a short covering rally driven by a recovery in the euro and equity markets in Europe and the US after Monday's post Spanish bailout sell off. We are now entering the major event period for the month of June with the OPEC meeting kicking off tomorrow and the Greek elections on Sunday. Also since yesterday the EIA, IEA and OPEC have all released their oil forecasts while today the EIA will release its weekly oil inventory report. Last night the API data showed a surprise build in crude oil and decline in gasoline stocks (see below for more details on all of the fundamental reports.

I am still expecting a rollover with no production cuts from the OPEC meeting. I am still of the view that the Saudi's will keep oil production high even if oil prices continue to decline. I believe part of the strategy is to add pressure on Iran with lower oil prices and thus hope that it motivates Iran and the West to eventually negotiate a deal over Iran's nuclear issues. The next Iran/West meeting is in Moscow early next week.

At the moment most risk asset markets are still in a downtrend even after a short covering rally yesterday. The technicals for all of the markets are also suggesting lower values going forward. However, event risk will take over as the main price driver for all of the risk asset markets including the oil complex as the macro correlations remain very tightly linked. I believe there is a lot of trading and investing dollars sitting on the sidelines which is likely to remain parked in bonds and money markets until more clarity emerges from the major market headwinds. Following are just some of the main questions clouding all of the markets

Who will win the Greek elections?

Will the Spanish bank bailout actually go forward?

Is Italy next on the agenda?

Will the EU move to eurobonds?

Will contagion spread around to other EU countries as well as outside the EU?

Will the EU slip back into recession?

Will the US economy continue to slow?

Will China's easing result in a growth spurt for this meteoric economy?

Will the US Fed announce another quantitative easing program at their June meeting?

What will be the outcome of the OPEC meeting...production cut or status quo?

Will any progress be made at the next round of talks between Iran and the West?

If no progress is made does it quickly increase the likelihood of military action in the region?

There are more but I trust you all get the point as to the magnitude of the event risk to all of the markets over the next two to three weeks. All of the above have implications for the market and are likely to impact the direction of the markets...at least for the short term. In addition to all of the normal technical and fundamentals approaches you use for trading and investing for the next two to three weeks you must pay close attention to not only the outcome of all of the events but the 30 second news snippets hitting the media airwaves leading up to all of the events. The only guarantee is markets will remain volatile with sudden price reversals as we saw during Monday's US trading session.....

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Tuesday, June 12, 2012

U.S. Dry Natural Gas Production Growth Levels off Following Decline in Natural Gas Prices

U.S. dry natural gas production has increased since late 2005 due mainly to rapid growth in production from shale gas resources. However, there have been two notable instances (see red ovals in the chart) in the last seven years when natural gas production leveled off during a period of falling spot natural gas prices. The first was during the recent economic recession and the latest began in the fourth quarter of 2011 and continued through the first quarter of 2012.

graph of Monthly U.S. dry natural gas production and Henry Hub natural gas spot price, January 2005 - March 2012, as described in the article text

Weather events (see green ovals) have also affected U.S. natural gas production.
The major events over the past seven years that have caused dry gas output to level off or even decline include:

Hurricanes Katrina and Rita (Sep-Oct 2005) - Disrupted up to 12.2 billion cubic feet per day (Bcf/d) in offshore natural gas production.

Hurricanes Gustav and Ike (Sep 2008) - Disrupted up to 9.5 Bcf/d in offshore natural gas production.

Economic recession and falling prices (Oct 2008- Sep 2009), Reduced industrial and manufacturing activity, and lower electricity use eased demand for natural gas as a feedstock and a power generation fuel. Natural gas prices fell sharply as a result.

Winter well freeze offs (Feb 2011) - Disrupted up to 7.5 Bcf/d in natural gas production from Texas to Arizona, when water froze inside wellheads during extremely cold weather and blocked gas flows.

Supply overhang and falling natural gas prices (Oct 2011-Mar 2012) A warm winter that reduced heating fuel demand and record high gas inventories resulted in a nearly 50% drop in gas prices, causing some energy companies to postpone new drilling and cut back on some existing operations.

Natural gas production was relatively flat between October 2011 and March 2012, when Henry Hub spot gas prices declined from just above $3.50 to around $2.00 per million British thermal units in March. Preliminary EIA data indicate a slight drop in production during March, according to the Natural Gas Monthly report released on May 31.

Of the five large gas producing states tracked monthly by EIA Texas, Louisiana, New Mexico, Oklahoma, and Wyoming, New Mexico had the highest percentage decline in its March gross natural gas production, down 2.2 percent from the previous month, while Texas had the largest volumetric drop, down 150 million cubic feet per day. States that EIA does not presently track on a monthly basis, such as Pennsylvania, may have seen their gas output increase during March.

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