Phil Flynn: Earl, The Grinch That Stole Labor Day

All of the Who’s down in Whoville may be safe but it seems Hurricane Earl is bent on washing out and stealing their Labor Day fun! The holiday weekend may wash away for many states up and down the East coast.

As Hurricane Earl barrels down it will bring a crashing end to the summer gasoline demand season that was already not up to par with market expectations. The so called “Summer of Recovery” and the all of the gasoline and oil demand expectations that came along with it, now looks like it should be more appropriately titled “The Boulevard of Broken dreams”.

Up and down the Easy Coast of the United States, vacations, tee times, picnics and frivolity of all kinds are being canceled as that heartless monster, Earl, is showing us he has not learned the true meaning of the Labor day holiday which is to relax and burn up a lot of gas. And Earl has his accomplices and no, it is not a dog dressed up as a reindeer.

No, Earl's accomplice is a companion tropical storm named Fiona and a potential tropical wave behind that as well will, at the very least, assure us some very lousy weather for much of the East Coast from Florida with the worst in the Carolina’s all the way up potentially to New York.....Read the entire article.

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Crude Oil Climbs After Reports Show Gains in U.S., Chinese Manufacturing

Crude oil rose after manufacturing in the U.S. and China, the world’s biggest energy consuming countries, accelerated at a faster pace than expected in August. Oil climbed as much as 3 percent and equities rebounded from the biggest August slump in nine years after the Tempe, Arizona based Institute for Supply Management’s factory index rose to 56.3 from 55.5 in July. U.S. crude oil supplies increased 3.43 million barrels to 361.7 million last week, an Energy Department report showed today.

“Oil moves along with equities, the fundamentals don’t matter,” said Chip Hodge, who oversees a $9 billion natural, resource bond portfolio as senior managing director at MFC Global Investment Management in Boston. “Any shred of positive or negative economic news will move the oil market by a couple percentage points.” Crude oil for October delivery rose $2.26, or 3.1 percent, to $74.18 a barrel at 10:59 a.m. on the New York Mercantile Exchange. Oil traded at $73.63 a barrel before the release of the report at 10:30 a.m. in Washington.

Economists forecast the ISM factory index would decline to 52.8, according to the median of 78 projections in a Bloomberg News survey. Estimates ranged from 49.9 to 56. Manufacturing in China grew at a faster pace in August after the weakest performance since early 2009 in July, signaling that the economy’s slowdown is stabilizing.

Rising Index
The purchasing managers’ index rose to 51.7 from 51.2, exceeding forecasts, a government-backed report showed. Seasonal factors might have had an effect because the index typically gains as factories restart following July maintenance, Mizuho Securities Asia Ltd. said. A separate PMI released by HSBC Holdings Plc and Markit Economics gained to 51.9 from 49.4.

The August reading for the government index was more than the median 51.5 forecast in the Bloomberg survey of 17 economists. Fifty is the dividing line between expansion and contraction.
Australia’s economy grew at the fastest pace in three years last quarter, stoked by China’s demand for iron ore. Gross domestic product advanced 1.2 percent from the first quarter, when it rose a revised 0.7 percent, the Bureau of Statistics said in Sydney today.

Reporter Mark Shenk can be reached at mshenk1@bloomberg.net and Margot Habiby at mhabiby@bloomberg.net.

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Crude Oil Technical Outlook For Wednesday Morning

Crude oil was higher due to short covering overnight as it consolidates some of the decline off last Friday's high. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term.

Closes above the 20 day moving average crossing at 75.88 are needed to confirm that a short term low has been posted. If October renews this month's decline, May's low crossing at 70.35 is the next downside target.

First resistance is Monday's high crossing at 75.58
Second resistance is the 20 day moving average crossing at 75.88

Crude oil pivot point for Wednesday morning is 72.73

First support is last Wednesday's low crossing at 70.76
Second support is May's low crossing at 70.35

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Where is Crude Oil and Gold Headed on Wednesday?

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




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Bears Maintain Near Term Technical Advantage as Traders Wait For Friday's U.S. Jobs Report

The U.S. stock indexes closed firmer today and saw some short covering to end the month. Bears still have the overall near term technical advantage. Traders are awaiting Friday's key U.S. jobs report. Trading could be quieter up until Friday morning. Remember that the months of September and October have been historically unkind to the stock market bulls. Friday's jobs report and the stock market's reaction to it could set the tone for trading in the stock indexes during the month of September.

Crude oil closed down $2.95 at $71.75 a barrel today. Prices closed near the session low today as bears have regained fresh downside technical momentum. A less than rosy economic assessment from the Fed in its FOMC minutes helped to sink crude today. Crude oil bears have the overall near term technical advantage.

Natural gas closed down 0.2 cents at $3.81 today. Prices closed near mid-range today. The bears still have the solid overall near term technical advantage. A 2 1/2 month old downtrend is still in place on the daily bar chart. The next upside price objective for the bulls is closing prices above solid technical resistance at $4.20.

The U.S. dollar index closed up 3 points at 83.59 today. Prices closed nearer the session high today. Bulls and bears are still on a level near term technical playing field. Bulls' next upside price objective is to close prices above solid technical resistance at 85.00.

Gold futures closed up $11.80 at $1,251.00 today. Prices closed near the session high, hit a fresh two month high, scored a bullish "outside day" up on the daily bar chart and posted a significantly bullish monthly high close today. Bulls gained fresh upside technical momentum today and are now poised to challenge the all time high of $1,270.60, scored in June. A weaker U.S. dollar and some fresh safe haven buying interest also helped to support the gold market today.

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Bloomberg Analysis: Crude Oil Price May Fall to $63 If Cap at "Pivot High" Holds

Crude oil may decline as low as $63 a barrel in New York if prices remain capped by a “pivot high” at $76.47, according to technical analysis by Barclays Capital. Oil futures for October settlement traded around $74 a barrel on the New York Mercantile Exchange today, having lost about 6 percent in August during their first monthly slide since June. Barclays predicts the losses may extend as far as $63 to $65 a barrel if crude stays below the level that confirmed the most recent downward trend, known as a “pivot high.”

On Aug. 19, following a two week fall in which oil dropped 9 percent, crude rose as high as $76.47. That level, higher than the previous and following days’ closing prices, constitutes a pivot high. In the following week, crude slumped to a three month low of $70.76, confirming that the downward slope had not been broken. “Absent a close above $76.47, I think you’ll maintain the downtrend,” Barclays analyst MacNeil Curry said in a telephone interview from New York today.

Prices will first be drawn to $70.35 a barrel, the lowest point reached by the October contract during its slide in May, according to Curry. After that, it is “fairly likely” the commodity will plunge another $6 to $7 as sagging equity indexes drag other markets lower, he said. “The inter-market is not very constructive right now,” Curry said. “Equity markets remain vulnerable to further downside.”

Reporter Grant Smith can be reached at gsmith52@bloomberg.net

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Schlumberger Finalizes $11 Billion Dollar Merger with Smith International

Schlumberger has closed its merger with Smith International. As previously announced, each Smith stockholder will receive 0.6966 shares of Schlumberger common stock in exchange for each Smith share, with cash paid in lieu of any fractional shares of Schlumberger common stock. Schlumberger has issued approximately 176 million shares pursuant to the merger, representing a transaction value of approximately $11 billion. As a result, former Smith stockholders own approximately 12.9% of Schlumberger's outstanding shares of common stock.

The merger widens Schlumberger's lead as the world's largest oilfield services company based on revenue and market capitalization. Smith's drilling technologies, other products and expertise complement a variety of Schlumberger technology offerings, while the geographical footprint of Schlumberger will enable the merged companies to extend joint offerings worldwide.

Andrew Gould, Chairman and Chief Executive Officer of Schlumberger, commented, "I am extremely pleased to welcome Smith employees, customers and shareholders to Schlumberger. We are ready to begin the process of realizing the synergies made possible by this merger and our focus in the near term is on the execution of plans that have been laid out these past few months while continuing to deliver safety and quality in our field operations. Beyond the near term, the merger will allow us to address new markets and develop new technologies, and employees from both companies will have key roles to play in unlocking the value brought by the combination."

John Yearwood, former Chief Executive Officer of Smith, said, "This is an exciting time for all the former Smith International employees as we aggressively expand our service offerings through the rapid implementation of the identified growth strategies while continuing to focus on our customers' everyday needs. The quality of the integration planning process has been outstanding and everyone is looking forward to exceeding expectations."


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Phil Flynn: The Hurricane Threat!

Many oil traders when they think about the impact of hurricanes on the oil market most often focus on the threat to supply. Yet the truth is more often than not hurricanes are more of a threat to demand then they are to supply. That is definitely the case when it comes to Hurricane Earl, not to mention tropical storm Fiona, Hurricane Danielle and a storm to be named later. Earl in particular could do major demand destruction as its path is perilously close to the East Coast.

Earl currently is a category 4 hurricane and is expected to graze the tip of North Carolina on Friday at 2 am just as vacationers are planning to arrive for the big three day Labor Day holiday weekend. I am sure many looking at the weather maps may be canceling their plans already as many will not want to chance the storm. In fact cancelation may become more prevalent as storm warnings all up and down the East coast may cause vacationers and beach lovers to stay closer to home! Hurricane Earl could just destroy a lot of holiday weekend travel plans and the gasoline demand that was expected. The oil and gas market was expecting.....Read the entire article.

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Crude Oil Technical Outlook For Tuesday Morning August 31st

Crude oil was lower overnight as it consolidates some of last Friday's rally. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

Closes above the 20 day moving average crossing at 76.49 are needed to confirm that a short term low has been posted. If October renews this month's decline, May's low crossing at 70.35 is the next downside target.

First resistance is Monday's high crossing at 75.58
Second resistance is the 20 day moving average crossing at 76.49

Crude oil pivot point for Tuesday morning is 74.76

First support is last Wednesday's low crossing at 70.76
Second support is May's low crossing at 70.35



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Where Does The King of Natural Gas Price Forecasts Say Prices Are Headed

From Peter Schaefer at "Oil and Gas Investment"......

First Energy analyst Martin King, whom I believe has called the natural gas market in North America better than anybody over the last two years, gave up on the likelihood of higher natural gas prices for the next 18 months in a report today, Aug 30.

“Let us reiterate: placing money in the natural gas investment space, aside from special one time circumstances, is likely to be dead on arrival” he wrote this morning. He lowered his forecast for prices in the US for 2010 by 40 cents per million BTU, and in 2011 by a full dollar per million BTU (Mmbtu).

Back in February 2009, he was one of the very few calling for a spring rally in gas prices, but there was one. Throughout July and August 2009 he counselled investors that a big seasonal run was coming in natural gas prices and gas stocks, and he was right. Today King was even more negative on Canadian natural gas prices than US prices: “Impacts for Canadian gas pricing are even more negative as we have also chosen to modestly widen the price spread between Nymex and Aeco prices over the same forecast horizon.”

NYMEX is the New York merchantile exchange, and one of the major hubs where natural gas prices are quoted. AECO is the the Alberta based Canadian standard natural gas price quote. In the US, the reason for the lower price forecast is simple: natural gas producers are still drilling, despite low prices.

In Canada, King’s reasoning for even lower prices than the US include one that I have been speaking about for months: increased pipeline capacity in the US that makes domestic gas very portable, and has opened up new markets (the Northeast US and California) for previously stranded Rocky Mountain gas in the US, the mainstream Canadian media have not reported on this, and the amount of Canadian gas that is being displaced by this, at all.

Increasing gas supply coming out of Western Canada, as the Montney, Horn River and gas saturated oil plays increase production. First Energy forecast an actual increase in Western Canadian gas production in 2011, which would be the first time since 2006. King also spoke to a new pipeline taking Canadian gas down into the US at a time when the US market is having a hard time digesting all its own new home grown supply.

In an entertaining 7 page report, he used the analogy of the supply side being a big dragon, and the only sword that could slay it is sustained low prices for 18-24 months“....we are now wielding a price sword to slay this supply dragon with the view that prices low enough for long enough, will tilt the balance of the market firmly to a structurally undersupplied situation.”

Interestingly, natural gas prices rallied today, crawling back over $3/mmcf in Canada and up 11 cents to $3.74 in the US. Also, this last week of August marked the low price point for natural gas in Canada and the US for all of 2009.

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