Sharon Epperson: Where is Crude Oil and Gold Headed on Tuesday?

CNBC's Sharon Epperson 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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Stock Market and Commodities Commentary For Monday Evening Oct. 25th

The December S&P 500 index closed higher on Monday and above the 87% retracement level of the April-July decline crossing at 1178.21. The low range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are overbought, diverging but are neutral to bullish signaling that additional short term gains are possible. If December extends the aforementioned rally, April's high crossing at 1203.00 is the next upside target. Closes below the 20 day moving average crossing at 1161.62 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 1193.00. Second resistance is April's high crossing at 1203.00. First support is the 10 day moving average crossing at 1174.62. Second support is the 20 day moving average crossing at 1161.62.

Crude oil closed higher on Monday as it consolidates some of the decline off this month's high. The mid range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. Closes below the reaction low crossing at 79.90 are needed to confirm that a short term top has been posted. Closes above the reaction high crossing at 84.80 are needed to confirm that a low has been posted. First resistance is last week's high crossing at 84.80. Second resistance is this month's high crossing at 85.08. First support last week's low crossing at 79.90. Second support is the August-September uptrend line crossing near 78.10.

Natural gas closed shortly higher on Monday due to short covering as it consolidated some of this year's decline. Stochastics and the RSI are oversold, and are turning neutral to bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 3.983 are needed to confirm that a short term low has been posted. If December extends this year's decline, weekly support crossing at 3.390 is the next downside target. First resistance is the 10 day moving average crossing at 3.877. Second resistance is the 20 day moving average crossing at 3.983. First support is today's low crossing at 3.500. Second support is weekly support crossing at 3.390.

Gold closed higher due to short covering on Monday as it consolidates some of this month's decline. The mid range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI remain bearish signaling that sideways to lower prices is possible near term. If December extends this month's decline, the 25% retracement level of this year's rally crossing at 1303.50 is the next downside target. Closes above the 10 day moving average crossing at 1351.00 would confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 1351.00. Second resistance is this month's high crossing at 1388.10. First support is last Friday's low crossing at 1315.60. Second support is the 25% retracement level of this year's rally crossing at 1303.50.

The U.S. Dollar closed lower on Monday and the mid range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are bullish hinting that a short term low might be in or is near. Closes above the reaction high crossing at 78.61 are needed to confirm that a short term low has been posted. If December extends the decline off August's high, the November 2009 low on the weekly continuation chart crossing at 74.21 is the next downside target. First resistance is the 20 day moving average crossing at 77.85. Second resistance is the reaction high crossing at 78.61. First support is last Friday's low crossing at 75.85. Second support is the November 2009 low on the weekly continuation chart crossing at 74.21.


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UL: The End of Oil's Golden Age

One can argue that the world would be very different from what it is today if we hadn’t found crude oil and invented how to leverage this very convenient and relatively cheap energy source. The energy density of oil derivatives such as gasoline is superior to any other substance in liquid or gas form. That’s why the majority of cars are propelled either by gasoline or diesel and airplanes use kerosene.

Also, approximately 15% of oil is used to make asphalt, plastics and a wide variety of critical chemical products. Therefore, crude oil plays a key role in the modern globalized world economy. It has truly enabled a golden age for those that can afford to leverage it.

Unfortunately, oil is a finite resource and some day we will run out of it if we continue consuming it like we do. Long before this happens we will have serious problems, as soon as demand exceeds the supply. This is the essence of “peak oil” concept. International Energy Agency (IEA) estimated in their 2008 World Energy Outlook that oil production should not peak before 2030 if 64 million barrels per day (mb/d) of additional capacity is taken into use between 2007 and 2030.

In theory this is possible, but in practice there is a very real risk of under investment since the required new capacity is equivalent to six times the current production of Saudi Arabia. Therefore, the report concludes that an oil supply crunch can happen as early as 2015.

It is immensely hard to estimate the maximum rate at which the oil can be extracted from all different sources, both conventional and unconventional. Therefore, it is also hard to estimate when oil production will peak. What seems fairly certain is that it will do so within the next 30 years, and I personally believe it will happen within the next 10 years......Read the entire article.



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Renewed USD Selling Boosts Commodities

G20's pledge to avoid competitive devaluation failed to halt the slide in USD. Indeed, the market realized the agreement may only calm fears of currency tensions temporary while, in the long term, global economic imbalances persist. The focus has turned to the upcoming FOMC meeting which will be held on November 2-3. Announcement of some sort of easing measures has been priced in. The unknown is how aggressive the Fed will restart QE2. As the dollar weakens, commodities advance with gold rising to 1339 after plunging to as low as 1315.6 last Friday. Crude oil strengthened for a second day to 82.5 as strikes in France continue and tropical storm threatens.

There are few catalysts stopping the market from selling USD even after the G-20 meeting. While member countries agreed to 'refrain from competitive devaluation of currencies' and to move towards 'more market determined exchange rate systems that reflect underlying economic fundamentals', there's no proposal on how to reduce international trade imbalance between countries. It's only stated in the communiqué that 'persistently large imbalances, assessed against indicative guidelines to be agreed, would warrant an assessment of their nature and the root causes of impediments to adjustment as part of the Mutual Assessment Process'.

The US has also made no commitment to refrain from further quantitative easing in the fact of criticisms by other member countries. German Economy Minister Rainer Bruederle said 'it's the wrong way to try to prevent or solve problems by adding more liquidity…Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate'. Canadian Finance Minister Jim Flaherty also agreed with the notion that 'aggressive quantitative easing in the US would create devaluation pressure on the U.S. currency'......Read the entire article.


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Phil Flynn: Currency Détente

All we are saying is give peace a chance. Global leaders on a collision course towards an all out currency war pulled back from the brink of conflict by vowing not devalue their respective currencies to try and help their export markets. Forget the fact that the US is on the precipice of a major announcement involving the printing of a bunch of greenbacks and China is looking around saying “who us?”.

The perception by the market place that the G20 will do nothing to stop a drubbing of the dollar is sending the yen soaring to a 15 year high and the oil and other commodities soaring in early trade. In fact you might wonder why the oil market is not even stronger than it is considering the fact that not only is the dollar giving us support, but also the impact on the strikes in France that are going to take a toll on US supply. The AP reports that, “French Finance Minister Christine Lagarde says the country's massive strikes are costing the economy up to euro400 million ($562 million) each day.

Protests over President Nicolas Sarkozy's plan to raise the retirement age from 60 to 62 have left France struggling with fuel shortages, travel chaos and uncollected garbage. Lagarde told Europe-1 radio Monday that the daily economic cost is between euro 200 million and euro 400 million. The minister also says the strikes are damaging France's image abroad......Read the entire article.




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Crude Oil Technical Outlook For Monday Morning Oct. 25th

Crude oil was higher overnight and trading above the 10 day moving average crossing at 82.27. However, stochastics and the RSI remain bearish signaling that sideways to lower prices are still possible near term.

If December extends last week's decline, trendline support drawn off the August-September lows crossing near 78.13 is the next downside target. Closes above the reaction high crossing at 84.80 are needed to confirm that a short term low has been posted.

First resistance is the overnight high crossing at 82.99
Second resistance is the reaction high crossing at 84.80

Crude oil pivot point for Monday morning is 81.39

First support is last Wednesday's low crossing at 79.90
Second support is the uptrend line drawn off the August-September lows crossing near 78.13


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SPX, U.S. Dollar, Crude Oil and Gold Analysis

Last week was volatile thanks to China raising their interest rates a quarter basis point. This rate hike caused the Dollar to spike in value which in turn forced equities and metals to sell off sharply. This one day event caused equities to break below a short term support level causing a large number of protective stops to be triggered. This added more selling pressure causing the market to be down nearly 2.5% at one point but a late day bounce recouped a good chunk of the drop.

Wednesday & Thursday the market had a nice rally making back all of losses and then some. But Thursday afternoon we saw the market slip below a key short term support level and triggered another wave of stops. The market continues to resilience because it recovered into the close saving the day.

After Thursday’s end of day rally, we had expected a typical light volume session which typically chops around in a sideways or slow grind higher.

SPY – SP500 ETF 10 Minute Intraday Chart

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Crude Oil Rises a Second Day as Faster U.S. Economic Growth May Boost Fuel Use

Crude oil gained a second day in New York after forecasts that the U.S. economy probably grew at a faster pace in the third quarter, signaling a recovery in fuel demand in the world’s biggest crude consuming nation. Futures rose 1.4 percent on Oct. 22 amid speculation that a French strike may increase demand for imported fuels. U.S. gross domestic product climbed at a 2 percent annual pace, up from 1.7 percent in the previous three months, a Bloomberg News survey of economists showed before an Oct. 29 Commerce Department report.

The December contract advanced as much as 47 cents, or 0.6 percent, to $82.16 a barrel in electronic trading on the New York Mercantile Exchange, and was at $82.10 at 9:15 a.m. Sydney time. It rose $1.13 to $81.69 on Oct. 22. Prices gained 0.5 percent last week and are up 3.4 percent this year. Tropical Storm Richard strengthened to a hurricane, with maximum sustained winds of 90 miles per hour, as it moves to the west-northwest at 13 mph toward the coast of Belize, the U.S. National Hurricane Center said in an advisory yesterday.

Brent crude for December settlement added 30 cents, or 0.4 percent, to $83.26 a barrel on the London based ICE Futures Europe exchange. The contract gained $1.13, or 1.4 percent, to $82.96 on Oct. 22.


Courtesy of Bloomberg News


Reporter Ben Sharples can be reached at bsharples@bloomberg.net

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Getting Started in Commodities

Getting Started in Commodities shows you how to successfully invest in the commodities market in futures, stocks, stock indices, and options. The book explains how the commodities market works as well as how investors can identify and track commodity opportunities, using fundamental factors such as supply and demand and technical analysis tools. Fontanills, a seasoned trader and educator, also explains the basis of money management, teaches you how to find the best broker, and how to read seasonal chart patterns. Finally, he explores how to build a winning system and test and adjust it for success. Helpful appendices of contract specifications and additional readings are also included.

Just Click Here to order your copy of Getting Started in Commodities today!

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Kent Moors: How to Play an Explosive Oil Field Services Sector

The rise in crude oil prices is already ushering in another round of increasing drilling. Before the revenues from the oil itself start to flow, however, matters are improving dramatically for the oil field services (OFS) sector. OFS includes all aspects of field preparation, drilling, and well completion leading up to the actual flow. And actually, this applies to drilling for both oil and natural gas. On the gas side, prices are languishing, now down to less than $3.40 per 1,000 cubic feet for a standard NYMEX contract. Yet the huge prospects for unconventional flows from shale gas, tight gas, and coal bed methane production, combined with a likely push for additional gas as fuel in the production of electricity, are pushing drilling higher. And you can be among the first to profit.

The Best OFS Indicator: The Number of Drilling Rigs in Use
During the depths of the financial crisis, drilling experienced a collapse in rig usage, with the decline in both demand and pricing. At its low point, we had barely one third of the rigs being used in any capacity, many of them in injection or workover usages, that is, not drilling new wells for new volume. That is now in full reversal. As of Monday (October 18th), the overall total of drilling rigs in use stands near five year highs.

Even more significant are the field units involved in horizontal drilling. These operations are essential to shale gas and oil development, as well as a range of applications where lateral, rather than vertical, drilling angles are warranted, either for enhanced production or environmental reasons. I’ll give you one of the main indicators I always apply in looking at the overall rig figures. Since November 2005 (when I first started calculating these figures, roughly with the beginning of major shale gas plays), having at least 500 rigs in North American field development applied only to horizontal drilling and hydrofracking operations is taken to mean a significant rise in the OFS market.

As that figure moves beyond 500, we tend to experience an OFS sector heating up, with expanding prices and equipment shortages. That puts OFS providers and their field availability at a premium, thereby increasing service charges… and profitability. A total above 600 indicates an accelerating inflationary pressure in those charges. And as of Monday, the horizontal rig usage stood at 641. What is occurring in rigs is also taking place up and down the OFS provision chain, from seismic and geological survey services to well completions and logging (the generation of readings to determine a range of wellhead and pipe casing conditions). And the results are intensifying.

Read the entire article to learn How to Profit on the Explosive Oil Field Services Sector



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