Crude Oil Technical Outlook For Tuesday Morning Oct. 12th

Crude oil was lower due to profit taking overnight as it consolidates some of the rally off August's low. Stochastics and the RSI are overbought and are turning bearish signaling that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 78.64 would confirm that a short term top has been posted. If November renews the rally off last week's low, the 62% retracement level of May's decline crossing at 84.65 is the next upside target.

First resistance is last Wednesday's high crossing at 84.09
Second resistance is the 62% retracement level of May's decline crossing at 84.65

Crude oil pivot point for Tuesday morning is 82.51

First support is the 10 day moving average crossing at 81.47
Second support is the 20 day moving average crossing at 78.64


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Crude Oil Decline as Dollar Strengthens Against the Euro and Yen

Crude oil fell for a second day after the dollar strengthened, reducing the appeal of commodities as an investment, and as Saudi Arabia signaled that OPEC may leave oil production quotas unchanged. The dollar yesterday climbed from an eight month low against the euro and a 15 year low to the yen. The currency had retreated earlier on speculation the Federal Reserve will signal it’s willing to buy more government debt to spur economic growth.

OPEC may leave oil production quotas unchanged when it meets this week after Saudi Arabian Oil Minister Ali al-Naimi described the market as “very well balanced,” and said an oil price between $70 and $80 a barrel is “ideal.” “The dollar is so heavily sold at the moment, creating the opportunity for a bit of strength in the dollar and softness in oil,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said by phone. “You would be leaning toward a softer oil price this week.”

Crude for November delivery fell as much as 66 cents, or 0.8 percent, to $81.55 a barrel on the New York Mercantile Exchange, and was at $81.62 at 12:14 p.m. Singapore time. Yesterday, prices lost 0.5 percent to $82.21. Futures last week recorded a third consecutive weekly gain, the longest stretch since June. Brent crude for November settlement declined as much as 0.8 percent to $83.07 a barrel. The contract slipped 31 cents, or 0.4 percent, yesterday to $83.72 on the ICE Futures Europe exchange in London......Read the entire article.


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Matt Nesto: China Moves into Texas with Billions on Natural Gas

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



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Commodity Corner: Crude Oil, Gasoline Settle Higher

A stronger dollar contributed to lower November crude oil futures Monday. Oil settled at $82.21 a barrel, a 45 cent drop from Friday, as the euro declined 0.8% during Monday's trading. Because oil is priced in dollars, a stronger dollar makes the commodity more expensive and thus less attractive to investors. Oil peaked at $83.50 and bottomed out at $82.01.

Crude oil might have lost more ground had gasoline not rallied for the second consecutive trading day. Gasoline, which settled two cents higher to end the day at $2.17 a gallon, has benefited from a recent prediction by the U.S. Department of Agriculture that this year's corn harvest will bring smaller yield. Consequently, prices for the corn based gasoline additive ethanol are expected to rise. Gasoline for November delivery traded within a range from $2.14 to $2.17.

November natural gas continued to follow a downward course Monday, settling a nickel lower at $3.60 per thousand cubic feet. The front month natural gas price fluctuated between $2.14 and $2.17.

Courtesy of  Rigzone.Com


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Stock Market and Commodities Commentary For Monday Evening Oct. 11th

The U.S. stock indexes closed mixed again today in quieter holiday trading. The stock index bulls still have the overall near term technical advantage as uptrends are in place on the daily bar charts. However, the uptrends have turned into more sideways price action recently, which is likely to continue in the near term. Stock index bulls have been very pleased with price action so far this autumn a time which is normally not favorable to market bulls.

Crude oil closed down $0.61 at $82.05 a barrel today. Prices closed near the session low today on profit taking from recent gains. Prices are still in a six week old uptrend on the daily bar chart. The next near term upside price objective for the bulls is producing a close above solid technical resistance at $86.00 a barrel.

Natural gas closed down 4.9 cents at $3.602 today. Prices closed near the session low today and closed at a fresh contract low close. The bears still have the solid overall near-term technical advantage. The next upside price objective for the bulls is closing prices above solid technical resistance at $4.00.

Gold futures closed up $9.30 at $1,354.60 today. Prices today closed near the session high and closed at a fresh contract and all time record high close. Bargain hunters stepped in to buy some early session weakness and prices pushed higher. The gold bulls have the solid overall near term technical advantage and have regained upside momentum the past two trading sessions. Prices are in a 2 1/2 month old uptrend on the daily bar chart.

The U.S. dollar index closed up 19 points at 77.75 today. Prices closed near the session high today and hit a fresh nine month low. Tepid short covering in a bear market was featured. Bears still have the solid overall near term technical advantage. There are still no early clues to suggest a market bottom is close at hand.


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Correlating Financial Factors to Crude Oil Q4 Pricing

Although the future of oil prices and related exchange traded funds are usually based on the basic fundamentals of demand and supply and the Crude oil prices did indeed fall after the American Petroleum Institute (API) report citing oversupply but its interesting to note that crude oil prices have been reacting more to the financial factors (such as moves in the S&P 500 index and the USD) much more as compared to the gross fundamentals of supply and demand.

Oil rose for a second straight session on Monday to top $83 as the dollar extended 15 year lows versus the yen and weakened against the euro, bolstering the appeal of commodities as an alternative investment. Earlier, oil prices had hit a five month peak near $83 a barrel, boosted by a slumping dollar after a BoJ rate cut and by tanker disruptions after a French strike and a closed Texan shipping route. November crude rose 1.42 percent to $82.63 per barrel, the highest settlement since closing at $86.19 on May 3rd.

Crude Oil vs. Financial Factors
An 8% stronger S&P 500 and a 4% weaker USD could very well push oil up to USD85/bbl level as a regression on oil as a function of the S&P 500 and the USD since September 1 suggests that current equity and currency levels are compatible with USD80/bbl oil. Crude oil prices are not only highly sensitive to global political and economic developments but also the US dollar as most of the worldwide oil sales are denominated in dollars. Usually when the dollar’s value declines as.......Read the entire article.



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Phil Flynn: Be Careful Of What You Wish For

The Federal Reserve wanted inflation and inflation is what they got! The Feds plan to restore activity to the economy by printing money and inspiring people to spend may have hit what you might call a reality check. While after a very weak jobs report showing that the economy lost 9500 jobs increasing the odds of quantitative easing, a report released simultaneously from the Department of Agriculture shows the perils of this policy. The USDA dramatically lowered its corn stocks to the lowest level in 14 years.

Corn shot up to the daily price limit sending shockwaves across the grain complex and the stock market as well. The Wall street Journal reported that, “A steep cut to U.S. corn harvest estimates triggered a rash of trades by investors who bet that tighter corn supplies could keep rippling through the stock market.“ “Analysts called the U.S. Department of Agriculture report a shocker. It shaved a record 6.7 bushels per acre from last month's corn yield estimate, pushing the figures well below.......Read the entire article.


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Bigger Gains, Less Time. Tap Into the Potential of Weekly Options

From Price Headley's  "Potential of Weekly Options Series".....

Traders spoke, and the exchanges listened. And, if the growing popularity of the new weekly expiration options is any indication, these shorter term puts and calls will soon join their monthly expiration counterparts as mainstream trading instruments.

Just as the name implies, the newest innovation in option trading are derivatives that are issued on Thursdays, and then expire the following Friday six trading days later.

But why bother with short duration instruments when the traditional monthly expiries have been working fine for all these years? There are actually quite a few advantages these instruments boast that simply can't be said for the alternatives. Consider this: Weekly options inherently offer a greater Delta. That just means each of them are more responsive to changes in the underlying security's price during their lifespan than monthly options are.

Weekly options don't suffer from a high theta
In other words, time decay isn't a major impediment for weekly options. Since they're so short in duration, there's no excess time value (or premium) baked into the price. As a result, weekly options tend to cost less.

While those two details are the favorable technicalities, the overarching attraction to these new short term derivatives is not only bigger picture, but much more important than the high delta and low theta.... weekly options are amazingly flexible.

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One of the more challenging drawbacks of trading traditional options has been the misalignment of a traders timeframe and the options lifespan.

For example, a trades sweet spot may end up spanning the last week of one month and the first week of the next month. However, since monthly options expire right before that sweet spot has occurred (and are issued several weeks before that period), a trader may be forced to choose an option, expiration, or strike price that doesn't fully maximize a trades potential.

Said another way, a lack of choices of when an options life begins and ends means the trade's theta and delta aren't ideal, leaving money on the table.

Weekly options, conversely, are new every week, so a trader can pick and choose to step into a trend that's moving at the time. Or, he or she can choose to pass on a trade that's stagnant at the time. And what happens when the underlying stock or index starts to move again? No problem,  just step in again with the next weekly issue. There's no need to waste time and tie up capital by holding an option during the underlying security's dead periods.

And what sorts of securities or indices currently offer these weekly options. All the usual suspects in terms of indices are available. Major indices like the S&P 500, and weekly options for some of the major sector ETFs are on the table as well. A few of the most highly-traded stocks are in the fray too. Since these are issued on a revolving basis at the discretion of the exchanges though (largely depending on demand), you never know which stock you may be able to play this way in the future. [Indeed, many traders have used them as a way to leverage a position for purely a one-time event, like an earnings announcement.]

While the advantages of trading weekly options are clear, a new set of trading mindsets and rules also apply:
Get your short term charts and ebb/flow predictions ready. One of the primary reasons equity and index options exist in their traditional time frames, with a lifespan of months if not more than a year, is to offer an active investor a way to leverage his or her capital, while allowing that same trader to ride out rough patches on the way to the end goal. Weekly options, on the other hand, are a short-term chartists dream. The key question is, where will this stock/index be in a week (or less)?

Use the market tide to your advantage. In the same vein is think short term, traders should tap the markets near term tidal forces since 3 out of 4 stocks tend to move in tandem with the markets strong moves. Yes, given enough time, the best individual stock trends can defy the market's ebb and low. The whole point here is speed though, which means calling the market right at any given time is half the battle (whether you?re trading stock or index options).

Keep the original intent in mind. It's contrary to most everything we?ve been taught as investors, but the whole point of weekly options is to reap the benefit from a short term move,  get in and out accordingly. Some traders are using them to profit from news announcements (like earnings). Others are just using them to hedge a position through a certain timeframe. Don't be afraid to cut loose once your reasonable objective has been met.

The proliferation of weekly option trading is sure to be a beneficial one for traders. Like any other trading arena though, it's the mastery of the nuances more than the mechanics that will be the key to your success.

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Crude Oil and Energy Headlines For Sunday Evening Oct. 10th

Crude Oil Rises a Second Day Amid Speculation Fed May Buy Debt to Boost Economy

Crude Oil advanced for a second day in New York as the dollar fell against the euro after bigger than expected U.S. job losses spurred speculation that the Federal Reserve will buy more debt to boost the economy. Futures rose 1.2 percent on Oct. 8 after the Labor Department said that employers cut 95,000 workers in September following a revised 57,000 decrease in August. The median estimate of economists surveyed by Bloomberg News was for a drop of 5,000. A weaker U.S. currency increases the appeal of commodities as an alternative investment.

“The market is pricing in a high probability of quantitative easing and so the U.S. dollar has come off,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “A lot of it seems to be because of the weaker non-farm payrolls number.” Crude for November delivery gained as much as 76 cents, or 0.9 percent, to $83.42 a barrel in electronic trading on the New York Mercantile Exchange, and was at $83.13 at 12:43 p.m. Sydney time. Futures climbed 99 cents to $82.66 on Oct 8. Prices are up 4.8 percent this year.

The dollar lost 0.3 percent to $1.3978 per euro, after closing at $1.3939 on Oct. 8 in New York. The Fed may purchase bonds in a strategy known as quantitative easing, weakening the U.S. currency and boosting dollar denominated commodities. Brent crude for November settlement climbed as much as 53 cents, or 0.6 percent, to $84.56 a barrel on the ICE Futures Europe exchange in London. It jumped 60 cents, or 0.7 percent, to $84.03 on Oct. 8.......Read the entire article.

OPEC May Maintain Oil Output in Vienna on Uneven Economic Growth

OPEC may leave oil production unchanged when it meets in three days’ time because signs of a recovery in demand have yet to emerge among the world’s developed economies. The oil market is “a little oversupplied,” Mohamed al- Hamli, the oil minister of the United Arab Emirates, the third- biggest producer in the Organization of Petroleum Exporting Countries, said Oct. 9. OPEC members are all exceeding their allotted quotas after prices surged 78 percent in 2009 and a further 4 percent this year.

Fuel demand in the U.S., the world’s biggest oil consumer, dropped 6.4 percent to 18.5 million barrels a day, according to the U.S. Energy Department, the biggest weekly decline since 2004. Oil prices are forecast to slide this week, according to an Oct. 8 survey of 33 analysts by Bloomberg. “I don’t think there will be any shift” in quotas by OPEC, Qatari Oil Minister Abdullah al-Attiyah said in a phone interview yesterday after meeting in Kuwait with ministers from Saudi Arabia and other Persian Gulf nations. “Producers and consumers are happy” with current oil prices, he said.

Crude oil closed at $82.66 a barrel in New York last week, about the same level as when the group last met on March 17. Growth in oil demand will be uneven next year, with the International Energy Agency forecasting a 4.3 percent increase in China and a 0.8 percent retraction in Europe’s five biggest countries. OPEC members, which supply 40 percent of the world’s oil, meet Oct. 14 at the group’s headquarters in Vienna........Read the entire article.

Hedge Funds Raise Bullish Bets on Oil to Five Month High

Hedge funds raised bullish bets on oil to the highest level in more than five months amid speculation that the Federal Reserve will enact further stimulus measures to keep the economic recovery on track. Hedge funds and other large speculators increased wagers on rising crude prices by 44 percent in the seven days ended Oct. 5, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the highest level since April 23.

“The writing has been on the wall for the rally in crude oil for the last few weeks,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania. Crude has rallied 12 percent since Sept. 17 amid growing evidence that the Fed will need to start debt purchases to prevent the world’s biggest economy from sliding back into a recession, weakening the U.S. currency and boosting dollar denominated commodities. The dollar depreciated 1.1 percent last week, while crude advanced 1.3 percent.

Oil for November delivery rallied 99 cents to settle at $82.66 a barrel on Oct. 8 on the New York Mercantile Exchange after the Labor Department said U.S. employers cut hiring more than forecast in September, trimming 95,000 workers. The median estimate of 87 economists surveyed by Bloomberg News was for a decline of 5,000 jobs........Read the entire article.

Courtesy of Bloomberg News

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China: Is a Housing Bubble, a Fragile Economy, and an Agricultural 'Doomsday' Scenario Possible?

From Rick Bradner, at the Oil and Gas Bulletin.....

I’ll preface my remarks by stating my bias up front. I love China, the Chinese people, the food, the chaos, the confusion, the expectations, and all the contradictions. I’ve traveled there more than 10 times in the last 20+ years and have just returned from a 5 week visit. I lived and worked in Kunming from 1997-1999.

First, a brief recap on how we got here:
China has been in a more or less constant state of upheaval for the last 100 years beginning in 1912 when a revolutionary military uprising led to the provisional government of the Republic of China being formed in Nanjing by Sun Yat-sen. This republican government was fragmented and fairly powerless. Following the death of Sun in 1925, China descended into a more or less constant state of civil unrest including the Sino-Japanese War (1937–1945) ending in 1949 with the defeat of Chiang Kai-shek by the Communist forces of Mao Zedong. A range of policies aimed at social engineering such as “ the 100 Flowers Campaign”, “the Great Leap Forward” and “the Great Sparrow Campaign” added greatly to the human toll wrought by the drought of 1959-60. It was estimated that at least 25 million and possibly as many as 35 million Chinese died due to famine.

This was followed in short order by “The Cultural Revolution” which officially ran from 1966-1976 and ended with Mao’s death. Among other things, The Cultural Revolution brought the education system to a virtual standstill, with many teachers and professors being sent for “re-education” and this is still having an enormous impact on Chinese development policy.
The last major “revolution” was far more positive, when Dèng Xiaopíng came to power and opened up China to capitalism 30 years ago. The time since has been the longest period of stability the country has enjoyed in at least 150 years.

Is that Swan Black?
Education & the new leaders – The Cultural Revolution is the pivotal event in recent Chinese history. Economically, a major transition the country is going through as a result of the Cultural Revolution is replacing that generation’s relatively uneducated workforce with the “post-revs”. All else aside, this should deliver a significant move in productivity.
Politically, the next group scheduled to assume leadership of China beginning in 2012 will include the first of the post-Cultural Revolution generation to receive what would be considered a modern education.

It’s an open question as to what direction they will take the country. As the first computer generation, will they be open to a more liberal policy on internet access, or having never experienced the ravages of war, will they be less adverse to military adventures? Japan, Notwithstanding the enormous recent investments Japan has made, nor official denials, the Chinese neither like nor trust Japan. The memories of the atrocities of the Sino-Japanese War have not diminished. On my recent visit I saw frequent references to and recounting of Japan’s brutality in China. A military conflict between the nations within the next 15 years is a real (if small) possibility.

China’s bubble All protestations to the contrary, I believe that China is in the midst of a housing bubble approaching the levels of those in the U.S.pre-2008. Currently, there are NO property taxes in China. Given the limited number of available investment options, this has resulted in a large number of housing units being built and left vacant. I’ve heard estimates for different cities ranging from 30%-55%. There has been discussion recently of introducing a property tax.

It makes a lot of sense to do so as it would take a bit of air out of the “bubble” in prices and generate some revenue for hard-pressed municipalities who have to supply services, but many of the developers are government owned, carry a large inventory of unsold units, and have a substantial interest in stalling this idea for as long as possible. If a property tax comes about it will be quite low initially but the threat of escalation could take a lot of new construction out of the equation. This could seriously impact the commodities markets.

“A disaster for the world” Premier Wen Jiabao said Wednesday (Oct.6) that a rapid shift in the value of the yuan would be “a disaster for the world” I wouldn’t argue that the RMB isn’t over valued, but given that it’s pretty much the only major economy that’s reasonably stable at the moment, this is probably not the best time to kick the legs out from under their chair. The Chinese economy is really only 30 years old and is still pretty fragile; anything but a gradual move could derail it and the global recovery. “If the yuan isn’t stable, it will bring disaster to China and the world,” the Premier warned. I don’t think he’s too far off the mark.
China’s “Great Depression”? Something I’ve been thinking about a lot lately and that is admittedly pretty far off the map, is the possibility of a “Black Swan” agriculture event in China.

In 2008 I often countered the contention that the U.S. was then headed for another “Great Depression” by pointing out that in 1930 20% of the U.S. work force were farm workers (2% today) and that the “Dust Bowl” drought of the ‘30’s generated a 15%+ unemployment rate all by itself. This on the heels of the 1929 economic crash, created the “Great Depression”; a true “Black Swan”event. Official numbers suggest that farming in China still accounts for 800 million (61%) of it’s 1.3 billion people. Imagine for a moment the chain of events that might follow a repeat of the 1958-1960 drought.

For anyone interested in a daily update on the view from Beijing, there is an English language version of CCTV


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