Elliot Warren: Demand Worries Smack Crude Oil Prices

Elliot Warren, Head Energy Options Trader for Kottke, says weak demand is what's really dragging down oil prices.



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Crude Oil Weekly Technical Outlook For Sunday Feb. 12th

Here is this weeks call on crude oil from the great staff over at ONG........

Crude oil's recovery from 95.44 failed to take out 101.29 and weakened sharply towards the end of the week. Crude oil is staying inside the near term falling channel from 103.74. Thus, choppy fall from there might extend below 95.44. Nonetheless, we'd expect strong support from 92.52 cluster support (38.2% retracement of 74.95 to 103.74 at 92.74). to contain downside and bring rebound. On the upside, break of 101.29 will be the first signal that recent consolidative trading has finished and flip bias back to the upside for a test on 103.74 resistance.

In the bigger picture, the medium term up trend from 33.2 shouldn't be completed yet. Rise from 74.95 is indeed tentatively treated as resumption of such rally. Sustained break of 114.83 will target 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40. On the downside, though, break of 92.52 support will indicate that correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before completion.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Is Crude Oil in a Short Term "Regrouping Phase"

We are looking for the crude oil market [April contract now] to be on the defensive for the next couple of days, but then expect it to regroup and start moving higher once again. We are looking for crude oil to make it’s highs probably somewhere in the May period.

Once over $102 a barrel, this market should skyrocket. We want to pay close attention to this market as we believe that the recent market action is reflecting an important cyclic low period for this market. If this is true, this market could be headed substantially higher. With a Score of +55, this market we remain in a trading range.

We remain longer term positive on this market. With our monthly and daily Trade Triangles in a positive mode, we expect we will see further market consolidation in crude oil. Long term traders should be long this market with appropriate money management stops.

What do Super Traders have in common?

Crude Oil Pulls Back on Renewed European Concerns and Demand

Crude oil fell overnight from the highest level weeks due to profit taking as it consolidates some of this week's rally. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 101.29 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, December's low crossing at 92.95 is the next downside target. First resistance is Thursday's high crossing at 100.18. Second resistance is the reaction high crossing at 101.29. First support is last Thursday's low crossing at 95.44. Second support is December's low crossing at 92.95.

Gold was lower overnight and poised to extend this month's decline. 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 1709.00 are needed to confirm that a short term top has been posted. If April renews the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.80 is the next upside target. First resistance is last Friday's high crossing at 1765.90. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the overnight low crossing at 1714.00. Second support is the 20 day moving average crossing at 1709.00.

Natural gas was slightly higher overnight. Stochastics and the RSI are bearish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 2.844 are needed to confirm that a short term low has been posted. If March renews the multi year decline, monthly support crossing at 1.960 is the next downside target. First resistance is last Monday's high crossing at 2.844. Second resistance is January's high crossing at 3.153. First support is January's low crossing at 2.289. Second support is monthly support crossing at 1.960.

Secrets of the 52 Week High Rule

Crude Oil Bulls Get New Strength on Stockpile Report

March crude oil closed higher on Wednesday following Tuesday's key reversal up and after reports of U.S. crude stockpiles increasing less than forecast. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI have turned bullish signaling that a low might be in or is near. Closes above the reaction high crossing at 101.39 are needed to confirm that a short term low has been posted. If March renews January's decline, December's low crossing at 92.95 is the next downside target. First resistance is the reaction high crossing at 101.39. Second resistance is the reaction high crossing at 102.24. First support is last Thursday's low crossing at 95.44. Second support is December's low crossing at 92.95.

March natural gas closed lower on Wednesday and the mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term. Closes above last Monday's high crossing at 2.844 are needed to confirm that a short term low has been posted. If March renews the multi year decline, monthly support crossing at 1.960 is the next downside target. First resistance is last Monday's high crossing at 2.844. Second resistance is January's high crossing at 3.153. First support is January's low crossing at 2.289. Second support is monthly support crossing at 1.960.

April gold closed lower on Wednesday and the low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1701.00 would confirm that a short term top has been posted. If April extends the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.28 is the next upside target. First resistance is last Friday's high crossing at 1765.90. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the 20 day moving average crossing at 1701.00. Second support is the reaction low crossing at 1652.20.

Was Friday’s Price Action in Gold Signaling a Top in the S&P 500?

Phil Flynn: A Better Future for Price Predictions

The Energy Information Agency came out with their latest Short Term Energy Outlook and I was glad to see that they are using the futures markets to improve their market forecasts. While the EIA has done a phenomenal job in the past providing the industry and traders with valuable information, it seemed that their price projections were always a bit behind the curve. More often than not, especially during the days of the strong bull petroleum market, it seemed that the Energy Information Agency was always playing a bit of catch up.

Of course it wasn't always their fault. You see there was an era of denial about the reasons for the bull market and if the EIA dared come out about the odds for sharply higher prices, they might have been accused of feeding into the bullish frenzy. The EIA really had to be careful about stepping out about a bullish price projection even if deep within the walls of the Department of Energy they felt that higher price were a possibility.

That restraint sometimes led to conservative calls that were meant not to rattle a market that was already looking for an excuse, any excuse, to reflect the reality of increasingly bullish fundamentals.....Read the entire article.

Was Friday’s Price Action in Gold Signaling a Top in the S&P 500?

EIA: Tight Oil, Gulf of Mexico Deepwater Drive Projected Increases in U.S. Crude Oil Production

 EIA's Annual Energy Outlook 2012 (AEO2012) early release reference case, providing updated projections for energy markets through 2035, projects increased domestic crude oil production driven by development of tight oil resources onshore and deepwater resources in the Gulf of Mexico. Tight oil refers to oil produced from shale, or other very low permeability rocks, with horizontal drilling and multi stage hydraulic fracturing technologies.

EIA projects that U.S. domestic crude oil production will increase from 5.5 million barrels per day in 2010 to 6.7 million barrels per day in 2020. Even with a projected decline after 2020, U.S. crude oil production projections remain above 6 million barrels per day through 2035.




The AEO2012 early Release Reference case projects that onshore tight oil production will increase significantly, reaching 1.3 million barrels per day in 2030 and remaining above 1 million barrels per day for the remainder of the projection. As with shale gas, the application of recent technology advances significantly increases the development of tight oil resources. Projections are made for selected tight oil plays; at this point, not all plays have been, or are being, evaluated for the application of emerging production technology.

The AEO2012 also projects that continued development of deepwater crude oil resources in the Gulf of Mexico will become an increasingly important component of domestic crude production. Drilling in the Gulf of Mexico Outer Continental Shelf has resumed following the lifting of the 2010 moratorium, but on a schedule moderated by a slower permitting process with increased environmental review. Production in the Gulf of Mexico fluctuates as new large development projects are brought on stream.

The AEO2012 Early Release Reference case assumes that lease options in the Pacific and Atlantic will eventually be opened, but significant production from those lease sales is projected to occur after 2035. Most of the Eastern Gulf of Mexico Planning Area remains under a Congressional drilling moratorium (the Gulf of Mexico Energy Security Act of 2006) until 2022.  

Crude Oil Moves Higher on Reports of Shrinking Stockpiles

March crude oil was higher overnight and trading above the 20 day moving average crossing at 99.03. Stochastics and the RSI have turned bullish following Monday's rally signaling that a low has likely been posted. Closes above the reaction high crossing at 101.29 are needed to confirm that a short term low has been posted. If March extends the decline off January's high, December's low crossing at 92.95 is the next downside target. First resistance is the 20 day moving average crossing at 99.03. Second resistance is the reaction high crossing at 101.29. First support is last Thursday's low crossing at 95.44. Second support is December's low crossing at 92.95. Crude oil pivot point for Wednesday morning is 97.79.

March natural gas was lower overnight. Stochastics and the RSI are neutral signaling that sideways to lower prices are possible near term. Closes above the reaction high crossing at 2.844 are needed to confirm that a short term low has been posted. If March renews the multi-year decline, monthly support crossing at 1.960 is the next downside target. First resistance is last Monday's high crossing at 2.844. Second resistance is January's high crossing at 3.153. First support is January's low crossing at 2.289. Second support is monthly support crossing at 1.960. Natural gas pivot point for Wednesday morning is 2.514.

April gold was lower due to profit taking overnight. Stochastics and the RSI are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1701.60 would confirm that a short term top has been posted. If April renews the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.80 is the next upside target. First resistance is last Friday's high crossing at 1765.90. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is Monday's low crossing at 1712.60. Second support is the 20 day moving average crossing at 1701.60. Gold pivot point for Wednesday morning trading is 1737.90.

10:30 AM ET. Feb 3 EIA Weekly Natural Gas Storage Report

Total Working Gas in Storage (previous 2966B)

Total Working Gas in Storage (Net Change) (previous -132B)

Was Friday’s Price Action in Gold Signaling a Top in the S&P 500?

Was Friday’s Price Action in Gold Signaling a Top in the S&P 500?

Friday morning traders and market participants awaited the key January employment report from the U.S. Bureau of Labor Statistics. The reaction to the supposedly wonderful report was a surge in the S&P 500 E-Mini futures contracts as well as several other key equity index futures.

The overall tenor among the financial punditry was predictable as wildly bullish predictions permeated the morning session on CNBC and in the financial blogosphere. However, after the report had been out for several hours notable independent voices such as Lee Adler of the Wall Street Examiner came out with information that suggested the numbers were an apparition of manipulated statistics.

I am not going to spend a great deal of time discussing the report, but the reaction to the news was decisively bullish on Friday. The question I want to know is whether Friday was a blow off top? In the recent past the S&P 500 has seen several key inflection points and intermediate-term tops form on non-farm payroll monthly announcements.

I follow a variety of indicators to help me decipher more accurately when the market is getting overbought or oversold. For nearly two weeks the market has been extremely overbought, but now we are reaching truly astonishing levels. The following charts represent just a few signals that the market is due for a pullback and a top is likely approaching.

Percentage of NYSE Stocks Trading Above Their 50 Period Moving Average

The chart above clearly illustrates that as of Friday’s closing bell (02/03) over 89% of stocks were trading above their 50 period moving averages. Consequently that reading is one of the highest levels that we have seen in the past 3 years. In addition, over 73% of stocks that trade on the NYSE are currently priced above their longer term 200 period moving averages. Another extremely overbought signal.

S&P 500 Bullish Percent Index Weekly Chart

The S&P 500 Bullish Percent Index is another great tool for measuring the overall position of the S&P 500. It is without question that the longer term time frame is reaching the highest level of overbought conditions in the past 3 years.

McClellan Oscillator Divergence with S&P 500 Price Action

The two charts shown above present an interesting situation regarding the divergence in the McClellan Oscillator and the price action in the S&P 500. The most recent example of this type of divergence occurred in October of 2011 and prices immediately reversed to the upside after several months of selling pressure. In fact, this correlation between reversals in the S&P 500 and divergences in the McClellan Oscillator works relatively well historically.

Clearly there are bullish voices arguing for the 2011 S&P 500 Index high of 1,370.58 to be taken out to the upside in the near future. Additionally, several market technicians in the blogospere have been pointing to the key resistance range between 1,350 and 1,370 on the S&P 500 as a likely price target. Obviously if those price levels are met strong resistance is likely to present itself. However, as a contrarian trader I have found that the more obvious price levels are the more likely it is that they either will not be tested or they will not offer significant resistance.

It is obvious that Chairman Bernanke and the Federal Reserve have embarked on a massive fiat currency printing campaign which has helped buoy risk assets to the upside. Through a combination of reducing interest rates on safety haven investments like Treasury’s and CD’s, the Federal Reserve has forced conservative investors and those living on a fixed income into riskier assets in search of yield.

This process helps elevate stock prices and creates the desired outcome for the Federal Reserve which involves the perception by average individuals that they are wealthier. The Fed calls this the “wealth effect” and they seem poised to insure that U.S. financial markets continue to ride upon a see of cheap money and liquidity.

Ultimately the Federal Reserve’s most recent announcements have served to help flatten the short end of the yield curve further while providing a launching pad for equities and precious metals. However, issues persisting in Europe could have an adverse impact on the short to intermediate term price action of the U.S. Dollar.

Right now everywhere I look I hear market prognosticators commenting on how hated the U.S. Dollar is and how Chairman Bernanke will not allow the Dollar to appreciate markedly in order to protect U.S. exports and financial markets. I think that the Dollar has the potential to rally in the short to intermediate term. Right now the U.S. Dollar Index appears to be trying to form a bottom.

U.S. Dollar Index Daily Chart

Obviously there is good reason to believe that the U.S. Dollar Index could reverse to the upside here. Whether it would have the strength to take out recent highs is unclear, but a correction to the upside not only seems unexpected by most market participants, but it seems plausible based on the weekend news coming out of Greece.

Monday morning the Greek government is set to determine if they will agree to the demands of the Troika in exchange for the next tranche of bailout funds. If the Greek government and the Troika do not come to an agreement, the Euro could sell-off violently.

Additionally there are already concerns about the next LTRO offering from the European Central Bank. The measure is to help provide European banks with additional liquidity, but there are growing concerns that the size and scope of the LTRO could have a dramatic impact on the Euro’s valuation against other currencies. Time will tell, but there are certainly catalysts which could help drive the U.S. Dollar higher.

Another potential indicator that the Dollar could see higher prices in coming days was the largely unnoticed bearish price action on Friday of precious metals. Both gold and silver have been on a tear higher over the past several weeks. Both precious metals have surged since the Federal Reserve announced that interest rates would remain near zero on the short end of the curve through 2014.

However, on Friday gold and silver were both under extreme selling pressure. The move did not get much attention by the financial media. The price action in gold and silver on Friday could be another indication that the U.S. Dollar is set to rally. The daily chart of gold is shown below.

Gold Futures Daily Chart

Obviously the reversal on Friday in gold futures was sharp. The move represented nearly a 2% decline for the session on the price of gold. However, as long term readers know I am a gold bull. I just do not see how gold and silver do not rally in the intermediate to longer term based on the insane levels of fiat currency printing going on at all of the major central banks around the world. The macro case for gold is very strong, but the short term time frame could reveal a brief pullback.

At this point, I suspect a pullback will present a good buying opportunity for those that are patient. However, I think it is critical to point out that this move in gold on Friday could be a signal that the U.S. Dollar is going to find some short to intermediate term strength. If the Dollar does start to push higher, it will likely put downward pressure on risk assets like equities and oil.

While Friday’s price action may not mark a top, nearly every indicator that I follow is screaming that stocks are overbought across all time frames. Pair that with the Greece uncertainty and LTRO considerations and suddenly the Dollar starts to look a bit more attractive. Ultimately I am not going to try to pick a top, but the evidence suggests that it might not be too many days/weeks away.

By: Chris Vermeulen – Get Chris' Free Weekly ETF Reports & Analysis
Co-Author: JW Jones – Get J.W.' Free Weekly Options Reports & Analysis

Crude Oil Finding Support, Bulls Must Defend $93.50 to Avoid Major Chart Damage

It would appear that for the short term crude oil is finding support around the $95.50 a barrel area. A close below the $93.50 level seen on December 18th would confirm a double top, pivot point formation which would cause major chart damage and risk trading down into the $84 a barrel level. We do remain longer term positive on this market, however it needs to move and close over resistance at $100 to get its upside momentum into high gear. With only our monthly Trade Triangle positive, we expect we will see further market consolidation in crude oil. Long term traders should be long this market with appropriate money management stops.

Crude oil posted an inside day on Monday with a lower close. The mid range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If March extends January's decline, December's low crossing at 92.95 is the next downside target. Closes above the reaction high crossing at 101.39 are needed to confirm that a short term low has been posted. First resistance is the reaction high crossing at 101.39. Second resistance is the reaction high crossing at 102.24. First support is last Thursday's low crossing at 95.44. Second support is December's low crossing at 92.95.

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