Crude Oil Closes Lower on Strength in The U.S. Dollar

Crude oil closed lower [80.50] due to profit taking on Friday as it consolidated some of Wednesday's rally. Stochastics and the RSI are overbought and are turning neutral to bearish hinting that a short term top might be in or is near. The low range close sets the stage for a steady to lower opening on Monday.

Closes below the 20 day moving average crossing at 74.28 would confirm that a short term top has been posted. If December extends this month's rally, the 38% retracement level of the 2008-2009 decline crossing at 84.64 is the next upside target.

First resistance is Wednesday's high crossing at 82.00
Second resistance is the 38% retracement level at 84.64

First support is the 10 day moving average crossing at 78.29
Second support is the 20 day moving average crossing at 74.28

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Natural gas closed lower [4.787] on Friday and the low range close sets the stage for a steady to lower opening on Monday. Today's decline turned stochastics and the RSI bearish signaling that sideways to lower prices are possible near term. If December extends this week's decline, the reaction low crossing at 5.280 is the next downside target.

First resistance is Wednesday's high crossing at 5.989
Second resistance is June's high crossing at 6.170

First support is today's low crossing at 5.473
Second support is the reaction low crossing at 5.280

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The U.S. Dollar closed higher due to short covering on Friday as it consolidated some of this month's decline. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

If December extends this year's decline, monthly support crossing at 73.39 is the next downside target. Closes above the 20 day moving average crossing at 76.28 would confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 75.68
Second resistance is the 20 day moving average crossing at 76.28

First support is Wednesday's low crossing at 75.09
Second resistance is monthly support crossing at 73.39

Are the U.S. Dollar and Crude Oil Joined at the Hip?

It would certainly appear that way, as continued weakness in the U.S. Dollar has sparked a stampede into the Crude Oil market lately. On Wednesday, the lead month December Crude Oil futures soared to yearly highs, nearly touching the $82.00 price level. This was the highest nearby futures price since October of 2008. Among the many reasons behind Oil's price rise are signs of an economic rebound, especially in Asia, and to a lesser extent in the U.S. and Europe. The recovery is expected to increase the demand for Oil worldwide as industrial demand improves. However, looking at near term supply and demand in the U.S., the high prices do not seemed justified. Oil stocks (excluding the SPR) are up 10 % from year ago levels. Gasoline supplies are up 7.5% and Distillate Fuel Oil up 33.2% as of October 16th, according to the Energy Information Administration (EIA). Not only are U.S. Oil inventories higher than last year, but poor refining margins have caused refiners to curtail production.

Wednesday's EIA energy stocks report showed refinery utilization stood at 81.1% last week. This compares to 84.8% in 2008 and the 3 year average of 86.03 during the same time period. So if refiners (who are actual users of Oil) are curtailing their Crude purchases, then who is buying and why? Large speculative traders are holding sizeable net long positions in Crude Oil, Gasoline, and Heating Oil according to the Commitment of Traders report. As of October 13th, large non-commercial traders were net long 151,631 Crude Oil contracts, 40,644 Gasoline contracts, and 35,271 Heating Oil contracts. This was up a cumulative 28,930 contracts for the week and shows that new buying was taking place as prices rose.....Read the entire article and charts.

Crude Oil Futures May Decline on Ample Stockpiles, Survey Shows

Crude oil futures may fall next week on speculation that U.S. inventories are sufficient to meet weakening demand. Eighteen of 36 analysts, or 50 percent, said oil will drop through Oct. 30. Twelve respondents, or 33 percent, forecast that the market will rise and six said prices will be little changed. Last week, analysts were split over whether prices would rise or fall.

“There is significant downside risk for crude oil,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Inventories remain high and demand is still weak.” Crude oil stockpiles rose 1.31 million barrels to 339.1 million last week, the U.S. Energy Department said in a report Oct. 21. The gain left inventories 9.4 percent above the five year average for the period. Supplies of distillate fuel, a category that includes heating oil and diesel, were 30 percent higher than average, the department said.....Read the entire article.

Oil Trades Slightly Lower Overnight on Short Covering in The U.S. Dollar

Crude oil was steady to slightly lower overnight as it consolidates some of Wednesday's rally. Stochastics and the RSI are overbought but are neutral signaling that sideways to higher prices are possible near term.

If December extends this month's rally, weekly resistance crossing at 84.83 is the next upside target. Closes below the 20 day moving average crossing at 74.33 would confirm that a short term top has been posted.

Friday's pivot point, our line in the sand is 80.88

First resistance is Wednesday's high crossing at 82.00
Second resistance is weekly resistance crossing at 84.83

First support is the 10 day moving average crossing at 78.39
Second support is the 20 day moving average crossing at 74.33

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Natural gas was higher due to short covering overnight as it consolidates some of Thursday's decline. Stochastics and the RSI are diverging and are turning bearish hinting that a short term top might be in or is near. Closes below the reaction low crossing at 5.280 are needed to confirm that a short term top has been posted.

If December extends this rally, June's high crossing at 6.170 then the 25% retracement level of the 2008-2009 decline crossing at 6.450 are the next upside targets.

First resistance is Wednesday's high crossing at 5.989.
Second resistance is June's high crossing at 6.170.

First support is Thursday's low crossing at 5.580
Second support is last Thursday's low crossing at 5.280

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The U.S. Dollar was higher due to short covering overnight as it consolidates some of Wednesday's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

If December extends this year's decline, monthly support crossing at 73.39 is the next downside target. Closes above the 20 day moving average crossing at 76.27 are needed to confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 75.66
Second resistance is the 20 day moving average crossing at 76.27

First support is Wednesday's low crossing at 75.08
Second support is monthly support crossing at 73.39

Crude Oil and Natural Gas Daily Technical Outlook

Nymex Crude Oil (CL)

Crude oil turns sideway after reaching 82 level and met 100% projection of 58.32 to 75 from 65.05 at 81.72. Upside momentum is diminishing a bit but after all, further rise is still expected with 77.61 remains intact. Sustained trading above 81.72 will pave the way to next medium term fibonacci level at 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. On the downside, though, below 77.61 will indicate that a short term top is likely in place, possibly with bearish divergence conditions in 4 hours MACD and RSI. Deeper decline should then be seen to 75 resistance turned support and below.

In the bigger picture, the strong break of 75.0 resistance confirms that medium term rebound from 33.2 has resumed and further rally should be seen. Note that crude oil is now in an important resistance zone of 76.77/90.24 (38.2% and 50% retracement of 147.27 to 33.2). As we're expecting rise from 33.2 to conclude in this zone, we'll look for sign of loss of momentum in the current rise, as well as reversal sign. Nevertheless, note that break of 65.05 is needed to indicate that crude oil has topped out. Otherwise, further rise is still in favor.....here is the charts.

Nymex Natural Gas (NG)

Natural gas' retreat from 5.318 is still in progress and intraday bias remains neutral for the moment. Nevertheless, further rally is still in favor as long as 4.35 support holds and break of 5.318 will target 38.2% retracement of 13.64 to 2.409 at 6.7 next. However, considering bearish divergence conditions in 4 hours MACD, break of 4.35 will indicate that a short term top is formed and deeper pull back should then be seen instead.

In the bigger picture, medium term fall from 13.69 is treated as part of the long term consolidation pattern that started at 15.78 back in 2005. The whole consolidation might have completed at 2.409 after meeting 100% projection of 15.78 to 4.593 from 13.69 at 2.50. We'll prefer the bullish case as long 55 days EMA (now at 4.119 holds) and expect the current rise from 2.409 to extend further to 61.8% retracement of 13.64 to 2.409 at 9.38 in medium term.....here is the charts.

Phil Flynn: Economic Smack Down

I am trying to figure out who is getting beat up worse, the refiners or the dollar. The smack down on refiners and the dollar send oil on another bullish adventure as commodity price inflation starts to show its adverse economic effects. Refiners for the second week in a row kept refinery runs at historically low levels causing another large drop in gasoline supply which drove RBOB gasoline futures to a seven week high.

The Energy Information Agency reported that refinery use rates rose 0.2 percentage point to 81.1 well below average for this time of year with finished gasoline production at a paltry 8.46 million barrels a day. According to Bloomberg News that was the second week in a row that production fell below 8.5 million barrels and the lowest production was since the week of February 6. The EIA reported that gas supplies fell 2.3 million barrels in the latest week which followed a 5 million barrel plus drop in supply from the week before. Gasoline supply which were almost 7% above the five year average a few weeks ago are now just 3.3% above the five year average. Refiners might as well be on strike as they cannot continue to produce a product that people are buying less of as input prices like crude go up and the dollar weakens. The EIA reported that gasoline demand 3.3 percent from the prior week to an average 8.95 million barrels a day which was the lowest in four weeks.

Add to that another dollar drubbing which helped send oil soaring to another new high. The euro gained strength on speculation that rates in the “zone” could be rising and broke through the $150 level versus the U.S. dollar for the first time in 14 months. Overnight China 8.9% GDP growth was stimulating but is raising questions how long the Chinese government can fuel the growth. Car sales in China were impressive but came on the back of government tax breaks. Fed chairman Ben Bernanke wants the Chinese to spend more but also let the yuan re-adjust so the trade deficit between the US and China can narrow. Early on commodity prices are not that impressed with the Chinese GDP.

Now as oil prices go above $80 OPEC is worried what may happen to demand. Dow Jones is reporting that, “The Organization of Petroleum Exporting Countries will increase its output quota in December, if inventories fall and oil prices and the economy keep recovering", the group's secretary general said Thursday. "If this price continues, if we see the stocks go back to the normal level" and the global economy continues to recover, "I am sure our member countries will take the decision to increase production," Abdalla Salem el-Badri told reporters. He subsequently added another condition to increase output would be "an end to floating storage." OPEC is due to meet next on Dec. 22 in Luanda, Angola. “OPEC is watching what is happening to US refiners and is aware that prices are now at a level that will start a new round of demand destruction and probably will start trying to jawbone the market down. They may be forced to start cheating on production to get prices under control. This would really be a shame because you know how these guys hate to cheat.

The weak dollar is having an impact on everything. How do you protect yourself in a weak dollar environment? Buying precious metals may be one way. If you think that you cannot afford to get in well maybe you are wrong. What if I told you could get into precious metals for as low as $50! Find out how! Just call me at 800-935-6487 or email me. Check me out every day on the Fox Business Network! And if you want a brokerage firm that does things right, you need to be with PFGBest! Whatever you're trading needs we can handle it: cash, grains metals, gold coins, bars and even stocks. If your broker is not doing enough for you call me at 800-935-6487 or email me at pflynn@pfgbest.com. Our platforms are great and the service beyond compare!

Buy December crude at 7427 - stop 7300.
Buy December RBOB at 18000 - stop 17800.
Buy December heating oil at 19500 - stop 19300.
Buy December natural gas at 510 - stop 470.

Phil Flynn @ PFGBEST Research Team
800.462.4691
pflynn@pfgbest.com

Where is Crude Oil Headed on Friday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.

Crude Oil Trades Lower as Dollar Bears Fail to Defend $75

Crude oil closed lower due to profit taking on Thursday as it consolidated some of Wednesday's rally. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. The high range close sets the stage for a steady to higher opening on Friday.

If December extends this month's rally, the 38% retracement level of the 2008-2009 decline crossing at 84.64 is the next upside target. Closes below the 20 day moving average crossing at 73.59 would confirm that a short term top has been posted.

First resistance is Wednesday's high crossing at 82.00
Second resistance is the 38% retracement level at 84.64

First support is the 10 day moving average crossing at 77.50
Second support is the 20 day moving average crossing at 73.59

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Natural gas closed lower on Thursday and the low range close sets the stage for a steady to lower opening on Friday. Despite today's decline, stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.

If December extends the rally off September's low, June's high crossing at 6.170 is the next upside target. Closes below the reaction low crossing at 5.280 are needed to confirm that a short term top has been posted.

First resistance is Wednesday's high crossing at 5.989
Second resistance is June's high crossing at 6.170

First support is today's low crossing at 5.580
Second support is the reaction low crossing at 5.280

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The U.S. Dollar closed higher due to short covering on Thursday as it consolidated some of this month's decline. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near term.

If December extends this year's decline, monthly support crossing at 73.39 is the next downside target. Closes above the 20 day moving average crossing at 76.36 would confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 75.79
Second resistance is the 20 day moving average crossing at 76.36

First support is Wednesday's low crossing at 75.09
Second resistance is monthly support crossing at 73.39

Weekly EIA Natural Gas Storage Report

Working gas in storage was 3,734 Bcf as of Friday, October 16, 2009, according to EIA estimates. This represents a net increase of 18 Bcf from the previous week. Stocks were 397 Bcf higher than last year at this time and 432 Bcf above the 5 year average of 3,302 Bcf. In the East Region, stocks were 114 Bcf above the 5 year average following net injections of 11 Bcf. Stocks in the Producing Region were 252 Bcf above the 5 year average of 935 Bcf after a net injection of 5 Bcf. Stocks in the West Region were 65 Bcf above the 5 year average after a net addition of 2 Bcf. At 3,734 Bcf, total working gas is above the 5 year historical range.



Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2004 through 2008.

Mid Week Oil and Natural Gas Trading Report

Commodities so far this week have not changed much. But I can point out a few things for us to watch Thursday and Friday.

Energy – Oil USO Fund – Energy Stocks XLE Fund
We are seeing a similar pattern in the energy sector. Oil had a nice move higher today while energy stocks sold off. Stocks are starting to fall out of favor.



Natural Gas – UNG Fund
Natural gas is still in a bear market and trading under a major resistance trend line. This commodity could go either way so I am going to wait for the odds to be more on my side before jumping on board with a long or a short trade.



Mid-Week Oil and Nat Gas Conclusion:
The market is starting to look and feel top heavy with many indicators and price action patterns giving cross signals. While the market could continue to rocket higher with new money getting dumped in from average investors because of solid 3rd quarter earnings, we must be cautious by tightening our stops and take some profits off the table. Until we get a short term oversold market condition I am trading very conservatively.

Waiting for a good trade is crucial in trading. If you always want to trade and force positions when the market is choppy you end up with lower probability trades.

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