Will China Supersede Saudi Arabia as the Key to U.S. Oil Prices?

BY KEITH FITZ-GERALD, Chief Investment Strategist, Money Morning

I bought a Toyota Prius last Saturday.

The signs are everywhere that oil is headed for stratospheric highs, $200, $250 or even $300 a barrel. Some of these signs are just plain obvious. But even the subtle indicators are telling us that some very expensive energy costs headed our way.

Let me tell you about one such indicator that I came across over the New Year holiday. A tiny news item said that Saudi Arabian oil concern Aramco is abandoning a lease on Caribbean oil storage, and further reported that PetroChina Co. Ltd. (NYSE ADR: PTR) is moving in to take Aramco's place.

Most investors here in the West - if they even read the item - would've dismissed it as just another minor business transaction, one among the thousands that take place each day. But this particular deal was much more than that. It's another indication of China's continued global emergence. And it also underscores this country's relegation to the growing legion of "former" world powers that have been eviscerated by the financial crisis that they created.

In case you missed the story, let me share the details, and then explain what I believe those details actually mean.

On the last day of the year, the state-owned Saudi Aramco walked away from a 5 million barrel storage capacity lease at the Statia Terminals Group NV facility on St. Eustatius Island in the Caribbean. Ordinarily that wouldn't be significant. After all, oil leases come and go - change is a normal part of doing business.

But two facts make this transaction different:

First, Aramco had renewed this lease - which accounts for 38% of the total storage capacity on the island - since 1995 as a means of staging oil near its primary market: The United States.

And, second, with Aramco's departure, PetroChina, China's state-run oil company, has opted to move in.

From a strict numbers standpoint, I grant you that a 5-million-barrel facility doesn't appear significant. That much oil will meet U.S. energy needs for all of about five hours. And it equates to less than 1% of the U.S. Strategic Petroleum Reserve, which holds about 726.6 million barrels of oil. So it's not like China will suddenly have a lock on the U.S. oil market.....Read the entire article.



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Crude Oil Falls for a Fifth Day on Dollar Strength, Rising U.S. Supplies

Crude oil fell for a fifth day, its longest losing streak in a month, as the dollar gained against the euro, curbing demand for commodities as a currency hedge. Oil is heading for its first weekly decline in five weeks after a U.S. government report showed crude stockpiles rose for a second straight week. The International Energy Agency kept its forecast for 2010 global crude demand unchanged at 86.3 million barrels a day in a monthly report today. “The second build in crude stocks has made the oil market more sensitive,” said Joern Quitzau, a Hamburg based economist at Berenberg Bank.

“The mood has changed for the oil market this week.” Crude oil for February delivery fell as much as 82 cents, or 1 percent, to $78.57 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $78.80 at 1:46 p.m. London time. A close at that level would mean a drop of 4.8 percent this week. The dollar gained the most in almost a month against the euro as Greece’s struggles with its budget deficit dented confidence in the region. The dollar traded as high as $1.4359 against the euro.

“If the economy is improving there is an expectation oil stocks will start to fall, but it’s not happening,” said Frank Schallenberger, head of commodities research at Landesbank Baden-Wuerttemberg. “The dollar is an extra point for today”.....Read the entire article.

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EIA: No Salvation For Natural Gas Investors In 2010

It appears the overall economic outlook for 2010 is going to be better than 2009, but what does that mean for natural gas prices? Here are some of the expert outlooks:

The Energy Information Administration's short term outlook for 2010 is for consumption to remain flat:

EIA expects the annual average natural gas Henry Hub spot price for 2010 to be $5.36 per thousand cubic feet (Mcf), a $1.30-per-Mcf increase over the 2009 average of $4.06 per Mcf. The price will continue to increase in 2011, averaging $6.12 per Mcf for the year.

Deutche Bank's outlook:
We are maintaining our 2010 calendar year forecast at USD6/mmBtu, which incorporates a USD5.50 entry price in the current quarter and a modest recovery throughout the year. For 2011 and 2012, we are forecasting USD6 and USD6.25/mmBtu. With ample supplies available from the shale plays and imported LNG, we are no longer expect a return to a long-term 8-10 to 1 oil/gas price ratio. We believe that USD6-7/mmBtu prices are sufficient to generate supply under normal market conditions over the next few years.....Read the entire article.

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Crude Oil and Natural Gas Technical Outlook For Friday Morning

Nymex Crude Oil (CL)

Crude oil's correction from 83.95 could still extend further as long as 80.69 minor resistance holds. Fall from 83.95 might still extend further to 38.2% retracement of 68.59 to 83.95 at 78.08 and below. But downside should be contained by 61.8% retracement at 74.46 and bring rally resumption. Above 80.69 will flip intraday bias back to the upside. Further break of 83.95 will target upper trend line resistance at 87/88 level again.

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.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

Nymex Natural Gas (NG)

Intraday bias in Natural gas remains neutral for the moment as it's sitll bounded in range of 5.354 and 5.85. Another fall cannot be ruled out and break of 5.343 will extend the correction from 0.6108 towards 61.8% retracement of 4.157 to 6.108 at 4.902. On the upside, break of 5.850 minor resistance will indicate that pull back from 6.108 has completed and will flip intraday bias back to the upside for a retest on 6.108 resistance.

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.....Nymex Natural Gas Continuous Contract 4 Hours Chart.

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Crude Oil Continues Slide in Friday's Session, Here's Todays Numbers

Crude oil was lower overnight and is trading below the 20 day moving average crossing at 79.03 as it extends this week's decline. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term.

Closes below the 20 day moving average crossing at 78.03 would open the door for a larger degree decline during January.

Friday's pivot point, our line in the sand 79.56

First resistance is the 10 day moving average crossing at 81.31
Second resistance is Monday's high crossing at 83.95

First support is Wednesday's low crossing at 78.37
Second support is the 50% retracement level of the December-January rally crossing at 77.41

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Natural gas was slightly lower overnight as it extends Thursday's decline. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term.

If February renews this month's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target. Closes above the 20 day moving average crossing at 5.739 would temper the near term bearish outlook in the market.

Natural gas pivot point for Friday is 5.625

First resistance is the 20 day moving average crossing at 5.739
Second resistance is Wednesday's high crossing at 5.785

First support is Tuesday's low crossing at 5.354
Second support is the 50% retracement level of the December-January rally crossing at 5.314

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The U.S. Dollar was higher due to short covering overnight as it consolidates some of this week's decline. Stochastics and the RSI are oversold and are turning neutral hinting that a short term low might be in or is near.

Closes above the 20 day moving average crossing at 77.85 are needed to confirm that a short term low has been posted. If March extends the decline off December's high, the 50% retracement level of the November-December rally crossing at 76.66 is the next downside target.

First resistance is the 10 day moving average crossing at 77.46
Second resistance is the 20 day moving average crossing at 77.85

First support is Wednesday's low crossing at 76.74
Second support is the 50% retracement level of the November-December rally crossing at 76.66

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Where is Crude Oil Headed on Friday?

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




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Gold Moves Higher on Consolidation, Signals Remain Bearish

Gold closed higher on Thursday as it consolidated some of Tuesday's decline. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI have turned bearish hinting that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 1116.90 are needed to confirm that a short term top has been posted. If February extends the rally off December's low, the reaction high crossing at 1170.20 is the next upside target.

Thursday evenings pivot point is 1131.40

First resistance is Monday's high crossing at 1163.00
Second resistance is the reaction high crossing at 1170.20

First support is Wednesday's low crossing at 1118.50
Second support is the 20 day moving average crossing at 1116.90

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Crude Oil Bulls Forced to Defend 78.83 on Friday

Crude oil closed lower on Thursday as it extends this week's decline. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term.

Closes below the 20 day moving average crossing at 78.83 would open the door for a larger degree decline during January. If February renews this winter's rally, the 38% retracement level of the 2008 decline crossing at 84.82 is the next upside target.

First resistance is the 10 day moving average crossing at 81.40
Second resistance is Monday's high crossing at 83.95

First support is the 20 day moving average crossing at 78.83
Second support is Wednesday's low crossing at 78.37

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Natural gas closed lower on Thursday ending a two day short covering bounce off Tuesday's low. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are turning neutral to bullish hinting that a pause in this month's decline is possible.

Closes above today's high crossing at 5.804 would temper the near term bearish outlook in the market. If February extends this week's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target.

First resistance is today's high crossing at 5.804
Second resistance is last week's high crossing at 6.108

First support is Tuesday's low crossing at 5.354
Second support is the 50% retracement level of the December-January rally crossing at 5.314

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The U.S. Dollar closed lower on Thursday as it extends this week's decline. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term.

If March extends this week's decline, the 50% retracement level of the November-December rally crossing at 76.66 is the next downside target. Closes above the 20 day moving average crossing at 77.85 would confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 77.54
Second resistance is the 20 day moving average crossing at 77.85

First support is Wednesday's low crossing at 76.74
Second support is the 50% retracement level of the November-December rally crossing at 76.66

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Oil Falls After U.S. Reports Drop in Retail Sales, Higher Jobless Claims

Crude oil fluctuated as U.S. retail sales unexpectedly weakened and jobless claims rose, indicating that the economy will be slow to recover. Oil extended its longest decline in a month as sales at U.S. retailers slipped 0.3 percent in December, after a 1.8 percent jump in November, according to the Commerce Department in Washington. Weekly jobless claims climbed 2.5 percent, the most in five weeks, the Labor Department said. “It’s getting more and more difficult to maintain prices at around $80, though last week it seemed like it was going to be the floor,” said Michael Fitzpatrick, vice president of energy at MF Global in New York. Prices are likely to trade in a $70 to $80 range without “incontrovertible signs that the economy is improving.”

Crude oil for February delivery fell 17 cents to $79.48 a barrel at 12:16 p.m. on the New York Mercantile Exchange. Crude prices have more than doubled in the past year, reaching a 15- month high of $83.95 on Jan. 11. Oil fell as much as 0.9 percent and rose as much as 0.9 percent today. Oil settled below $80 a barrel yesterday for the first time this year, after a U.S. government report showed the country’s crude and fuel inventories increased last week. Crude has declined 5.3 percent from the Jan. 11 high.

February crude oil options expiration at the end of the trading day is making futures volatile, analysts said.....Read the entire article.

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Crude Oil Futures Trading CL – Daily Chart

Oil has pulled back the past few days and is now trading near a support level. I feel it is over sold and could bounce the second half of this week and I will keep my eye on it for members.



Chris Vermeulen "The Gold and Oil Guy"




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