Oil Rises for Second Day on Demand Outlook, Supply Constraints

Crude oil rose for a second day on speculation increasing demand and constraints on supply will reduce global stockpiles and support prices. Oil imports by China, the world’s second largest consumer, climbed 24 percent in December to reach a record annual total of 203.8 million metric tons, according to a customs report yesterday. Chevron Corp. said the Makaraba-Utonana pipeline it operates in southern Nigeria’s Delta state was breached on Jan. 8, shutting-in 20,000 barrels a day of crude.

“Asia has obviously performed well throughout this recession,” said Toby Hassall, commodity analyst at CWA Global Markets Pty in Sydney. “Beyond the short term, the global economy, and the U.S. in particular, the largest consumer of oil, is in the early stages of a recovery, which suggests that demand is on the mend.” Crude oil for February delivery rose as much as 71 cents, or 0.9 percent, to $83.46 a barrel in after hours electronic trading on the New York Mercantile Exchange. It was at $83.43 at 8:07 a.m. Singapore time.

The contract rose 9 cents to $82.75 on Jan. 8 after the dollar tumbled on a report showing employment in the U.S. unexpectedly fell in December. Futures climbed 4.3 percent last week and gained in 11 of the past 12 sessions as freezing temperatures in Europe and North America boosted heating demand.....Read the entire article.

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How do you Calculate the Pivot Point?

Rarely a day goes by that someone doesn't ask "how do you calculate the pivot point". And while their are many different ways of coming up with this number, let me share with you what I think is the most common method.

Pivot points are very useful tools that use the previous bars' highs, lows and closings to project support and resistance levels for future bars. Daily pivot points are useful for swing trading. Longer term pivot points provide an idea of where key support and resistance levels should be. Place the pivot points on your charts and see how traders appear to give pivot point levels a lot of respect.

Daily pivots are calculated from previous day's high, low, close. Weekly pivots are calculated from previous week's high, low, close. The pivot levels and charts are updated throughout the day to cater for data adjustments during the day.

Formula: Pivot Point = Previous trading sessions high + close + low, divided by 3.

Try working this on all of your favorite tickers and watch the traders "show some respect"!


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Determining Oil & Gas Valuations

How do valuations get set for oil and gas companies? I ask because I’m seeing very fast rising valuations in the junior and intermediate oil sector that I cover. I have seen junior oil producers valued at $200,000 per flowing barrel recently, more than triple the peer group average.

Industry statistics concur. A December 24th report by Peters & Co., a Calgary based securities firm that is an oil and gas boutique, showed that the average purchase/sale price for oil weighted production in Q4 2009 was $100,000 per flowing barrel. This is up more than 50% from the Q3 valuation of just over $60,000. (Oil and gas equivalent is the way the industry puts the two commodities into one valuation, usually at 6:1 ratio of gas-to-oil).

The report showed that valuations for natural gas weighted purchases also jumped up more than 50% in Q4, from $35,000 per flowing boe to $54,700. These numbers have an immediate impact on junior and intermediate stocks across the board, as you’ll read.


(There are several ways to value oil and gas companies, but I find the price per flowing barrel to be the simplest. It’s easily calculated: market cap + debt (or minus cash) divided by the daily production level of the company, in barrels per day.)

What is driving these fast rising valuations? It’s

1) an increasing oil price and

2) improving technology – especially multi-stage fracking – that is allowing producers to retrieve more oil and gas, more quickly, in each well. This increases cash flow which increases stock prices.

3) Lower risk oil reservoirs—especially with the new “tight” oil and gas plays—drilling success rate is often 95%-100% now.


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Phil Flynn: Vying to be Mr. Yen

Whose yen is it anyway? Strong yen, weak yen and why in the world does the oil market care? Well the Japanese yen along with the dollar, have been bit players in the massive run in the oil. This year as traders looked for trades to carry them away, one trade that was very bullish for oil was the dollar/yen carry trade.

Oil soared as investor sold dollars because of our negative interest and bought other currencies, even the yen for heaven’s sake, that were yielding a higher interest rate. Traders tried to lock in the difference between the rates. Aggressive traders would take the profit from that yield and try to use it as free money to make more aggressive trades! Some even bought oil! Imagine that. By buying oil, it was like doubling down because as the trade gained more popularity and because oil is priced in dollars as the dollar weakened, oil rallied even more.

Other traders just took a piece of this trade by just selling the dollar outright or going long the yen or just buying things that would benefit by the weak dollar scenario like gold, silver, grains, copper and yes, even oil. Yet big changes in Japan and some mixed signals on the yen is causing some adjustment in this carry trade. It is also causing adjustments in the many cross currency/commodity spreads that in part explains why the oil and other commodities may seem to be less sensitive to movements in the dollar as of late.....Read the entire article.

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Where is Crude Oil Headed Next Week?

CNBC's Brian Shactman discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed next week.




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ExxonMobil May Strike Deal for $1B Arctic Rig With Transocean [RIG]

Exxon Mobil Corp. is reportedly mulling over a deal with leading offshore rig contractor Transocean to construct a drilling rig capable of operating in extreme Arctic conditions for as much as $1 billion, according to Reuters.

Citing a person familiar with the matter, Reuters reported Friday that ExxonMobil may deploy the rig offshore Greenland, Iceland or Alaska at a dayrate close to record level contracts in the $650,000 range, such as those signed for ultra deepwater rigs by Seadrill and Transocean near the peak of the market in 2008.

In November, Transocean Chief Executive Bob Long stated that the company expected to unveil a new Arctic class newbuild rig order, along with a contract, by the close of the year.

Chief Operating Officer Steven Newman, who will take the helm as Transocean's next chief executive in the first quarter of 2010, also commented during a recent conference call: "We have progressed [the rig's] design fairly far along [and] are in very developed discussions with a customer." Newman was hopeful that the contract would be finalized by the end of 2009, although Transocean had confirmed neither the contract nor the customer as 2009 drew to a close.....Read the entire article.

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Crude Oil and Natural Gas Technical Outlook For Saturday

Nymex Crude Oil (CL)

Crude oil finally broke 82.0 resistance to resume the medium term rally and stayed firm above this level. While some sideway trading might be seen in initially this week, outlook will remain bullish as long as 80.79 support holds. Recent rise from 68.59 is expected to resume sooner rather than later towards upper trend line resistance at 87/88 level. On the downside, break of 80.79 will argue that a short term top might be formed with bearish divergence condition in 4 hours MACD and deeper pull back could be seen before another rise.

In the bigger picture, the break of 82.0 resistance confirms that whole medium term rise from 33.2 has resumed. Nevertheless, there is no change in the view that it's a correction to fall from 147.27. Hence, we'd continue to look for reversal signal as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. However, break of 68.59 support is still needed to confirm that rise from 33.2 has completed. Otherwise, outlook will be neutral at worst even in case of deep pull back.

In the long term picture, there is no change in the view that fall from 147.27 is part of the correction to the five wave sequence from 98 low of 10.65. While the rebound from 33.2 is strong and might continue, there is no solid evidence that suggest fall 147.27 is completed and we're still preferring the case that rebound from 33.2 is merely a corrective rise only. Having said that, strong resistance should be seen between 76.77/90.24 fibo resistance zone and bring reversal for another low below 33.2 before completing the whole correction from 147.27.....Read the entire article.

Nymex Natural Gas (NG)

Despite edging higher to 6.108, Natural gas failed to sustain gain there and fell sharply towards the end of the week. Break of the near term rising trend line argues that a short term top is formed with bearish divergence condition in 4 hours MACD. Initial bias is milldy on the downside this week for deeper pull back towards 38.2% retracement of 4.157 to 6.108 at 5.363 first. On the upside, while some recovery might be seen, break of 6.108 high is needed to confirm that medium term rise has resumed. Otherwise, we'd expect more consolidations with risk for another fall.

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 and might have completed at 2.409 already. Rise from 2.409 is still in progress and should target 38.2% retracement of 13.694 to 2.409 at 6.72 and beyond. On the downside, break of 4.157 support is needed to indicate that medium term rise from 2.409 has completed. Otherwise, outlook is neutral at worst even in case of deep pullback.....Read the entire article.


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Crude Oil Traders End The Week on a Cautious Note

Crude oil closed slightly higher on Friday and the mid range close sets the stage for a steady opening on Monday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term.

If February extends this rally, the 38% retracement level of the 2008 decline crossing at 84.82 is the next upside target. Closes below the 10 day moving average crossing at 80.61 would signal that a short term top has been posted.

First resistance is Wednesday's high crossing at 83.52
Second resistance is the 38% retracement level of the 2008 decline crossing at 84.82

First support is the 10 day moving average crossing at 80.61
Second support is the 20 day moving average crossing at 77.13

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Natural gas closed lower due to profit taking on Friday but the mid range close sets the stage for a steady opening on Monday. Stochastics and the RSI are diverging and are neutral hinting that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 5.697 are needed to confirm that a short term top has been posted. If February extends the rally off December's low, October's high crossing at 6.300 is the next upside target.

First resistance is Thursday's high crossing at 6.108
Second resistance is October's high crossing at 6.300

First support is the 20 day moving average crossing at 5.697
Second support is the reaction low crossing at 5.505

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The U.S. Dollar posted a key reversal down on Friday and closed below the 20 day moving average crossing at 77.81. The low range close sets the stage for a steady to lower opening on Monday.

Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. Closes below Tuesday's low crossing at 77.39 would open the door for a larger degree correction during the first half of January. If March renews the rally off November's low, the 38% retracement level of the 2008-2009 decline crossing at 79.72 is the next upside target.

First resistance is the reaction high crossing at 78.77
Second resistance is the 38% retracement level at 79.72

First support is today's low crossing at 77.55
Second support is Tuesday's low crossing at 77.39

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Volatile Oil Markets Linked to Record Inventories - UH Study

A new academic study from the Bauer College of Business at the University of Houston concludes the unprecedented volatility in the oil markets in late 2008 and early 2009 was predominantly the product of market fundamentals during a time of extreme stress.
The study, An Evaluation of the Performance of Oil Price Benchmarks during the Financial Crisis, was done by Craig Pirrong, Professor of Finance and Energy Markets Director for Global Energy Management Institute, Bauer College of Business at the University of Houston.

It analyzed the behavior of two benchmark oil futures contracts during the period of financial crisis following the collapse of Lehman Brothers. It concluded that futures markets prices generally reflected the realities in the physical market where oil is bought, sold and stored. "The behavior of the WTI futures contract during the financial crisis reflected the truly unprecedented conditions prevalent during that period, which was reflected in market volatility and prices," Pirrong said. The study also found no instances where the prices set in financial markets had gotten out of whack with the most directly related cash markets.....Read the entire article.

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Crude Oil Falls After U.S. Payrolls Unexpectedly Decline

Crude oil fell after U.S. payrolls unexpectedly declined last month, spurring concern that the economy and fuel demand will be slow to recover. Oil slipped as much as 1 percent after the Labor Department reported that the world’s biggest energy-consuming country lost 85,000 jobs in December. Futures climbed to a 14-month high this week as temperatures dropped in the Northern Hemisphere, U.S. crude-oil supplies rose and the dollar weakened, bolstering the appeal of commodities to investors. “These numbers increase skepticism about the recovery,” said Michael Fitzpatrick, vice president of energy with MF Global in New York. “There’s no rational reason for prices to be at these levels. We’ll probably soon see a good-sized setback in prices.”

Crude oil for February delivery fell 50 cents, or 0.6 percent, to $82.16 a barrel at 9:44 a.m. on the New York Mercantile Exchange. Futures are up 3.5 percent this week after touching $83.52 on Jan. 6, the highest level since Oct. 14, 2008. Payrolls were forecast to be unchanged, according to the median estimate of 76 economists surveyed by Bloomberg News. “Today’s unemployment number underscores that any recovery in payrolls will be slow,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The recent rally was, in part, built on a much rosier outlook for the economy than these numbers paint. This will probably cool things off”.....Read the entire article.

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