CME: Crude Oil Steady Ahead of EIA Inventory Report

Crude oil prices have been steady over the last twenty four hours after a short covering rally driven by a recovery in the euro and equity markets in Europe and the US after Monday's post Spanish bailout sell off. We are now entering the major event period for the month of June with the OPEC meeting kicking off tomorrow and the Greek elections on Sunday. Also since yesterday the EIA, IEA and OPEC have all released their oil forecasts while today the EIA will release its weekly oil inventory report. Last night the API data showed a surprise build in crude oil and decline in gasoline stocks (see below for more details on all of the fundamental reports.

I am still expecting a rollover with no production cuts from the OPEC meeting. I am still of the view that the Saudi's will keep oil production high even if oil prices continue to decline. I believe part of the strategy is to add pressure on Iran with lower oil prices and thus hope that it motivates Iran and the West to eventually negotiate a deal over Iran's nuclear issues. The next Iran/West meeting is in Moscow early next week.

At the moment most risk asset markets are still in a downtrend even after a short covering rally yesterday. The technicals for all of the markets are also suggesting lower values going forward. However, event risk will take over as the main price driver for all of the risk asset markets including the oil complex as the macro correlations remain very tightly linked. I believe there is a lot of trading and investing dollars sitting on the sidelines which is likely to remain parked in bonds and money markets until more clarity emerges from the major market headwinds. Following are just some of the main questions clouding all of the markets

Who will win the Greek elections?

Will the Spanish bank bailout actually go forward?

Is Italy next on the agenda?

Will the EU move to eurobonds?

Will contagion spread around to other EU countries as well as outside the EU?

Will the EU slip back into recession?

Will the US economy continue to slow?

Will China's easing result in a growth spurt for this meteoric economy?

Will the US Fed announce another quantitative easing program at their June meeting?

What will be the outcome of the OPEC meeting...production cut or status quo?

Will any progress be made at the next round of talks between Iran and the West?

If no progress is made does it quickly increase the likelihood of military action in the region?

There are more but I trust you all get the point as to the magnitude of the event risk to all of the markets over the next two to three weeks. All of the above have implications for the market and are likely to impact the direction of the markets...at least for the short term. In addition to all of the normal technical and fundamentals approaches you use for trading and investing for the next two to three weeks you must pay close attention to not only the outcome of all of the events but the 30 second news snippets hitting the media airwaves leading up to all of the events. The only guarantee is markets will remain volatile with sudden price reversals as we saw during Monday's US trading session.....

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U.S. Dry Natural Gas Production Growth Levels off Following Decline in Natural Gas Prices

U.S. dry natural gas production has increased since late 2005 due mainly to rapid growth in production from shale gas resources. However, there have been two notable instances (see red ovals in the chart) in the last seven years when natural gas production leveled off during a period of falling spot natural gas prices. The first was during the recent economic recession and the latest began in the fourth quarter of 2011 and continued through the first quarter of 2012.



Weather events (see green ovals) have also affected U.S. natural gas production.
The major events over the past seven years that have caused dry gas output to level off or even decline include:

Hurricanes Katrina and Rita (Sep-Oct 2005) - Disrupted up to 12.2 billion cubic feet per day (Bcf/d) in offshore natural gas production.

Hurricanes Gustav and Ike (Sep 2008) - Disrupted up to 9.5 Bcf/d in offshore natural gas production.

Economic recession and falling prices (Oct 2008- Sep 2009), Reduced industrial and manufacturing activity, and lower electricity use eased demand for natural gas as a feedstock and a power generation fuel. Natural gas prices fell sharply as a result.

Winter well freeze offs (Feb 2011) - Disrupted up to 7.5 Bcf/d in natural gas production from Texas to Arizona, when water froze inside wellheads during extremely cold weather and blocked gas flows.

Supply overhang and falling natural gas prices (Oct 2011-Mar 2012) A warm winter that reduced heating fuel demand and record high gas inventories resulted in a nearly 50% drop in gas prices, causing some energy companies to postpone new drilling and cut back on some existing operations.

Natural gas production was relatively flat between October 2011 and March 2012, when Henry Hub spot gas prices declined from just above $3.50 to around $2.00 per million British thermal units in March. Preliminary EIA data indicate a slight drop in production during March, according to the Natural Gas Monthly report released on May 31.

Of the five large gas producing states tracked monthly by EIA Texas, Louisiana, New Mexico, Oklahoma, and Wyoming, New Mexico had the highest percentage decline in its March gross natural gas production, down 2.2 percent from the previous month, while Texas had the largest volumetric drop, down 150 million cubic feet per day. States that EIA does not presently track on a monthly basis, such as Pennsylvania, may have seen their gas output increase during March.

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Are Commodities Putting in a Bottom?

Crude oil closed higher due to short covering on Tuesday as it consolidates above the 87% retracement level of the 2011-2012 rally crossing at 81.36. The high range close sets the stage for a steady to higher opening when Wednesday's night session begins. 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 88.25 are needed to confirm that a low has been posted. If July renews this spring's decline, last October's low crossing at 77.05 is the next downside target. First resistance is the reaction high crossing at 87.03. Second resistance is the 20 day moving average crossing at 88.25. First support is last Monday's low crossing at 81.21. Second support is last October's low crossing at 77.05.

Natural gas closed higher due to short covering on Tuesday as it consolidated some of the decline off May's high. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July renews the decline off May's high, April's low crossing at 2.136 is the next downside target. Closes above the 20 day moving average crossing at 2.515 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 2.515. Second resistance is May's high crossing at 2.838. First support is today's low crossing at 2.173. Second support is April's low crossing at 2.136.

Gold closed higher due to short covering on Tuesday as it extends the rebound off last Friday's low. The high range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI are neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1583.80 are needed to confirm that a short term top has been posted. If August renews the rally off May's low, April's high crossing at 1674.30 is the next upside target. First resistance is the reaction high crossing at 1632.00. Second resistance is May's high crossing at 1674.30. First support is the 20 day moving average crossing at 1583.80. Second support is May's low crossing at 1529.30.

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Crude Oil Trade For This Week....Understanding Follow Through and Utilizing a Trailing Stop

From guest analyst Brian Booth.....

The chart shown below is a snapshot of the July Crude Oil futures. After spending the entire month slipping lower alongside of most of the major global markets, Crude Oil prices have tried to recover off of $82.00 a barrel in the first week of June.

One of the identifiable themes for this chart is the range that Crude traded in throughout May (see blue trendlines on chart). There were four days in the month when prices closed outside of this range, and this is what I feel is most important to highlight.

A common theme in market reports over the last few months has been the lack of volume in many of the futures, and markets overall. As Europe and China continue to disappoint, traders have been booking gains on their long term positions and have failed to return with the same enthusiasm that we saw when the US FED was actively easing the market.

Over the next few weeks, the markets will not only wait for the FED’s next FOMC policy statement but will also look for a final election decision out of Greece. This week, traders look to news from OPEC on Thursday as they meet to discuss oil output levels. The impact of these meetings and reports will be instrumental in determining whether many markets will recover from May’s slides, or whether they will endure another leg lower.

The reason that I chose the Crude Oil as the chart of the week is because I feel that the next time that Crude prices close outside of this range again, the move will show us a trend to trade. What I think is very important is to note how prices broke the trend on the upper end for two days, and then fell back into the range. Normally, closes above the range for multiple days would see follow through buying. Instead, prices quickly corrected lower.

Three days later, prices were not only lower; they closed outside of the range on the bottom end! Normally, traders would look for a follow through sell after two days below the range but were treated to an almost $5 rally in three days which was corrected twenty four hours later and almost corrected AGAIN twenty fours after that! If Johnny Carson were reporting on the technicals over the last eleven days, I imagine he would say, “This is some wild, weird stuff”!

With all of this in mind, I will be watching for Crude prices to close outside of the range again. I believe that the next time this happens, the trade will see follow through buying or selling instead of two days followed by a reversal. If Crude closes above the range, I will look for a continued move higher, but will definitely be recommending traders use stops below and in the range. If Crude prices begin closing below the range again, I will look for follow through selling and will recommend selling the futures with stop orders above and in the range. I will also recommend that traders utilize a trailing stop as the market allows.



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U.S. Crude Oil Production in First Quarter of 2012, Highest in 14 years

Strong growth in U.S. crude oil production since the fourth quarter of 2011 is due mainly to higher output from North Dakota, Texas,and federal leases in the Gulf of Mexico, with total U.S. production during the first quarter of 2012 topping 6 million barrels per day (bbl/d) for the first time in 14 years.



After remaining steady between 5.5 million and 5.6 million bbl/d during each of the first three quarters of 2011, EIA estimates that U.S. average quarterly oil production grew to over 5.9 million bbl/d during the fourth quarter and then surpassed 6 million bbl/d during the first quarter of 2012, according to the latest output estimates from EIA's May Petroleum Supply Monthly report (see chart below). The last time U.S. quarterly oil production was above 6 million bbl/d was during October-December 1998.



The roughly 6% growth in U.S. oil production from October 2011 through March 2012 is largely the result of increases in oil output in North Dakota, Texas, and the Gulf of Mexico. After passing California in December 2011 to become the third largest oil producing state, North Dakota then jumped ahead of Alaska in March 2012 as the state with the second largest oil output. Texas remains far ahead in the number one production spot.

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Lack of Faith in Spain Deal Sends Crude Oil Lower....Much Lower

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Crude oil closed lower on Monday but remains above the 87% retracement level of the 2011-2012 rally crossing at 81.36. The low range close sets the stage for a steady to lower opening when Tuesday's night session begins. 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 88.81 are needed to confirm that a low has been posted. If July renews this spring's decline, last October's low crossing at 77.05 is the next downside target. First resistance is the 10 day moving average crossing at 85.27. Second resistance is the 20 day moving average crossing at 88.81. First support is last Monday's low crossing at 81.21. Second support is last October's low crossing at 77.05.

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Natural gas closed lower on Monday renewing the decline off May's high. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are oversold but are bearish signaling that sideways to lower prices are possible near term. If July renews the decline off May's high, April's low crossing at 2.136 is the next downside target. Closes above the 20 day moving average crossing at 2.528 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 2.528. Second resistance is May's high crossing at 2.838. First support is today's low crossing at 2.198. Second support is April's low crossing at 2.136.

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Gold closed higher due to short covering on Monday as it consolidates some of last Thursday's decline. The high range close sets the stage for a steady to higher opening when Tuesday's night session begins trading. 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 1581.60 would confirm that a short term top has been posted. If August extends the rally off May's low, April's high crossing at 1674.30 is the next upside target. First resistance is the reaction high crossing at 1632.00. Second resistance is May's high crossing at 1674.30. First support is the 20 day moving average crossing at 1581.60. Second support is May's low crossing at 1529.30.

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Monday Precious Metals and Equity Prices are Marked UP!

The past couple months have been a roller coaster ride for investors and traders. Overseas headline news has made investing and trading more difficult than normal because of prices gaping up or down at the opening bell several times per week. The next two weeks are going to be even crazier because of the Greek election and Spanish bank bailout.

This past weekend it looks as though the Spanish banks are getting bailed out which will be similar to the 2008 – 09 bailout we saw in the United States. This news has marked up stocks and commodity prices during overnight trading Sunday. The major indexes are up 1-2% across the board.

Looking at the technical and sentiment this is what I feel will take place and how it can be attacked…

Major stock indexes and commodities will be trading at resistance at the open on Monday.

And the dollar which was hit hard in overnight trading Sunday is now trading at support. A bounce in the dollar and sellers stepping in at resistance could pull the market down for session or two.

The big questions is what do traders do with this jump stocks and commodities?

The first 15 minutes of Monday’s session short sellers will be panicking out of their positions and getting stopped out. Once the dust starts to settle resistance and an oversold dollar may do their part and force the market lower later in the day.

Now if we add sentiment into this picture thinking of the masses covering their short positions in a big way we know from past events that when the masses all trade the same direction the market quickly reverses goes the opposite direction in the short term for 1-3 days.

So what does one do if they are short the market this week as I am in this boat?

Personally, I would wait 15-30 minutes to let things unfold and see what the price, volume and sentiment is doing. Keep in mind morning trends tend to stall out and roll over at 10am ET, or 11:30am ET. Knowing that; I will be watching price and volume to see if there is a bearish intraday pattern unfolding that looks as though it will unfold within those time frames. If so, I will hold my position and look for a reversal back down where I can exit at a lower price hopefully. But for all we know this news may just put the top market and we get much lower prices yet. Anyways, that is my plan as of Sunday night.

Stocks, Gold & Dollar Rising Together?

The recent few months I have been talking about how we could stocks, commodities and the dollar rise together. While is sounds crazy we just may start seeing that happen sooner than later. The Euro group appears to be willing to bailout the Spanish banks and that should cause the Euro lose more value and send the US dollar soaring.

Having more Euro liquidity is bullish for stocks and commodities along with the dollar. For all we know this just may be the financial storm for American’s next eggs (investments owned in Dollars) to rebound strongly over the next 12 months.

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Crude Oil Weekly Technical Outlook For Saturday June 9th

From the staff at Oil N'Gold......

Crude oil turned into sideway consolidation after edging lower to 81.21 initially. Recovery was limited by 4 hours 55 EMA but there was no follow through selling. Initial bias is neutral this week and we'd likely see more consolidative trading ahead. Above 87.03 will bring another rise but upside should be limited by 92.21 resistance and bring fall resumption eventually. Below 81.21 will send crude oil through 80 psychological level to test on 74.95 key support.

In the bigger picture, price actions from 114.84 are developing into a three wave consolidation pattern. And, the third leg should have already started at 110.55. Deeper fall should eventually be seen to 74.95 low and possibly below. Though, we'd likely see strong support from 64.23 cluster level, 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise. Hence we'll look for reversal signal below 74.95.

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

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Bullish Signals Creeping in to the Crude Oil Market

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Crude oil closed lower on Friday but remains above the 87% retracement level of the 2011-2012 rally crossing at 81.36. The high range close sets the stage for a steady to higher opening when Sunday's evening session begins. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 89.54 are needed to confirm that a low has been posted. If July renews this spring's decline, last October's low crossing at 77.05 is the next downside target. First resistance is the 10 day moving average crossing at 86.17. Second resistance is the 20 day moving average crossing at 89.54. First support is Monday's low crossing at 81.21. Second support is last October's low crossing at 77.05.

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Natural gas closed higher on Friday as it consolidated some of the decline off May's high. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are oversold and are turning neutral to bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 2.547 are needed to confirm that a short term low has been posted. If July renews the aforementioned decline, the reaction low crossing at 2.166 is the next downside target. First resistance is the 20 day moving average crossing at 2.547. Second resistance is the reaction high crossing at 2.838. First support is today's low crossing at 2.231. Second support is April's low crossing at 2.096.


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Gold closed higher due to short covering on Friday as it consolidates some of Thursday's decline. The high range close sets the stage for a steady to higher opening when Sunday's evening session begins trading. Stochastics and the RSI are overbought and are turning neutral to bearish hinting that a short term top might be in or is near. If August renews the decline off February's high, the 75% retracement level of the 2010-2011 rally crossing at 1461.30 is the next downside target. If August extends the rally off May's low, April's high crossing at 1674.30 is the next upside target. First resistance is last Friday's high crossing at 1632.00. Second resistance is April's high crossing at 1674.30. First support is the 20 day moving average crossing at 1580.90. Second support is May's low crossing at 1529.30.

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Bloomberg: Crude Oil Heads for Longest Weekly Losing Streak Since 1998

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Crude oil fell, heading for the longest run of weekly losses in more than 13 years, on concern that an economic slowdown in the U.S. and Europe will worsen and curb fuel demand.

Crude dropped as much as 3.3 percent after German exports decreased for the first time this year as Europe’s debt crisis and weaker global growth reduced consumption. Federal Reserve officials need to assess the risk from Europe and U.S. budget cuts before deciding on stimulus measures, Federal Reserve Chairman Ben S. Bernanke said yesterday.

“Germany is the lynchpin of the whole euro zone, and if they are slowing, that’s going to add more negative news to the markets,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “It’s basically a letdown after Bernanke’s comments yesterday. There is no growth right now, no oil demand”.....Read the entire Bloomberg article.

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