Commodity Corner: Crude Oil Settles Lower; Natural Gas Breaks $4.00 Mark

Crude oil for December delivery settled lower Friday after the U.S. Commerce Department reported a lower than expected gross domestic product (GDP) estimate for the third quarter of 2010. Oil ended Friday's trading session $81.43 a barrel, a 75 cent decline from the previous day. The Commerce Department stated earlier in the day that Real GDP grew 2.0 percent at an annual rate during the third quarter, below the 2.1 percent that the private sector anticipated. During Friday's session, oil peaked at $82.12 and bottomed out at $80.56. The commodity is down 1.3% compared to Monday's settlement price.

Natural gas continued to benefit from predictions of colder temperatures for much of the Central and Eastern U.S. through next week. The December futures price settled at $4.04 per thousand cubic feet Friday, a 15 cent gain from the previous day and a 21.7% improvement from Monday's settlement price; note that the November contract was still being traded Monday. Gas traded within a range from $3.83 to $4.035 Friday. The price of gasoline for November delivery fell by a penny Friday, settling at $2.10 a gallon. Gasoline, which is up nearly 1% for the week, traded from $2.07 to $2.13.

Courtesy of Rigzone.Com

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Why Producers Aren't Hedging Natural Gas

Natural gas prices in Canada are so low that end users are now trying to seduce producers to hedge, so they can lock in longer term low prices. But few producers are keen to lock in long term losses. RBC, Canada’s largest brokerage firm, suggested in a weekly comment that producers still have many reasons to hedge at $3.27 a gigajoule (GJ) now, and $4.11/GJ in April 2011. For context, the full cycle cost for new gas in North America is $5.60/mmcf and in Canada is $6.85/mmcf, according to independent analysts Ziff Energy. So producers would be selling at a significant loss.

But some quick calls to the energy desks of the major Canadian firms showed that few producers are biting, and even one of my contacts at RBC said these “hedging strategies are geared more towards the end user market; the end users are trying to lock in really good prices. But nobody’s hedging.”

RBC lists several potential reasons for hedging, which often mirror the Ziff Energy white paper from June 2010 on the state of Canadian natural gas (a GREAT read – not too technical).

1. Strengthening Canadian Dollar

2. US Production Growth

3. Reduced Canadian Imports

4. Heightened Pipeline Delivery Competition in the US

5. Abundance of Canadian Storage

6. Material Expansion of Canadian Shale Gas Production

7. Growth in Marcellus Shale Gas Production – Production has increased by over 1 bcf/d since January 2010

That’s a big list! And it’s not good news for producers or their investors – especially the junior ones who either have high gas weightings or are close to their debt limit.

But despite producers losing money on every mmcf out of the ground, some may be inclined to hedge, says Ralph Glass of AJM Consultants.

“The bigger producers are still drilling and they can afford to (hedge); it’s part of their long term plan and their economics of scale allow it. The only advantage I can see is that if you’re making positive cash flow at $3.50/mmcf, this gives you stability to hang in for one more year. But it’s not an investment strategy.”

He added even small producers may consider it: “A small producer that has limited cash flow cannot afford to pay for capacity costs without actually producing the volumes.” This means they may have “take or pay” like provisions, where the producer must pay the pipeline companies their transportation tolls even if they don’t produce the gas.

For producers, it comes down to the same issue it always does, are prices going lower or higher? By not hedging, major producers are saying that despite all the gloomy market data, they see prices stable or higher.

Long term dated future gas prices are now below $5/mmcf for a full two years out now. With such a low, and flat futures pricing curve, producers are saying they would rather take their chances in the spot market then, rather than lock in losses now.

Keith Schaefer's Hottest Investment Plays in North America: Crude Oil and Natural Gas Bulletin


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Phil Flynn: Spooky QE2

Oil, boil, toil and trouble, we’re going to print more money. Count Bernanke is out to suck more blood out us poor turnips as the Fed looks like QE2 might be a whopper after all! Hey wait a minute! What? Is it possible that the Fed and the upcoming Mid-Term elections are not scaring the oil bear anymore? Well at least for a day the oil market seemed more spooked about mounting supply and decreasing demand then any spell that the Fed was going to cast upon the economy. Despite weakness in the dollar and the most impressive gold rush in weeks, oil struggled to close higher on the day.

Perhaps the market is still coming to grips with the horror of this week’s big build in U.S. supply which, according to the Energy Information Agency, is the highest level ever ending the month of October sitting at 366.2 million barrels. Now that’s scary! Not only that, the supply numbers are daunting with concern that demand from Asia is weakening. Dow Jones news wires reported that India's crude oil imports fell 21.9% to 10.94 million tons in September, or 2.67 million barrels a day, from 14.01 million tons a year earlier. Crude imports were up 14% from 9.57 million tons in August.

But there is still some concern about Indian demand. India imports about three quarters of its crude oil for its demand needs. We know that the global oil market feeds off of China and India feeds off of China and in China this week they took more steps to slow energy demand. After increasing interest rates, the Chinese attacked oil demand directly by increasing the cost of diesel and gasoline by 3%. Now we do not know whether or not a 3% increase will significantly slow demand but it might. Now take into account rising OPEC production and a glut of spare production capacity around the globe and it is no wonder why the oil upward momentum has been limited.

Check Phil out on the Fox Business Network! And sign up for his trade buy and sell points by calling him at 800-935-6487 or emailing him at pflynn@pfgbest.com.



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Total Profits Soar on Higher Oil, Refining

French oil company Total posted a 54 percent profit rise on Friday as higher oil and gas prices and strong refining margins lift industry earnings worldwide. Finnish refiner Neste Oil also reported improved profits after similarly strong performances from sector heavyweights Exxon Mobil and Shell on Thursday. Total said net income, excluding unrealized gains related to changes in the value of inventories, was 2.875 billion euros in the third quarter, boosted by gains from selling oil fields.

Stripping out one offs, the result was up 32 percent and in line with analysts' average forecasts. Neste said fatter refining margins lifted its operating profit, excluding inventory gains or losses, by 36 percent to 57 million euros ($79 million), in line with a mean forecast in a Reuters poll. The world's largest non government controlled oil company by market value, Dallas based ExxonMobil, reported a 55 percent jump in net income on Thursday, while industry No. 2, Royal Dutch Shell reported an 18 percent rise, which would have been higher but for non cash charges......Read the entire Reuters article.


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Crude Oil Daily Technical Outlook For Friday Morning Oct. 29th

Crude oil was lower overnight as it extends this week's decline. Stochastics and the RSI are turning neutral to bearish signaling that sideways to lower prices are possible near term.

If December renews last week's decline, trendline support drawn off the August-September lows crossing near 78.72 is the next downside target. Closes above Monday's high crossing at 83.28 are needed to confirm that a short term low has been posted.

First resistance is Monday's high crossing at 83.28
Second resistance is the reaction high crossing at 84.80

Crude oil pivot point for Friday morning is 82.11

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 78.72


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Crude Oil Pares Monthly Gain as Asian Shares Decline, Dollar Rebounds

Crude oil fell in New York, trimming a second monthly gain, as Asian equities dropped and the dollar’s rebound curbed investor demand for raw materials. Crude gave up yesterday’s 0.3 percent increase as equities declined, driving the MSCI Asia Pacific Index toward its second weekly drop. Crude stockpiles in the U.S., the world’s biggest oil consuming nation, reached the highest in 17 months after surging 5 million barrels in the week ended Oct. 22, according to Energy Department data. Futures have climbed 2.2 percent this month after an 11 percent rally in September.

“There’s no real consensus in markets so that’s why you’re getting this choppy trading where people are changing their view quite regularly, and that’s creating volatility,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “It does seem to be more sentiment driven and currency driven.” Crude for December delivery declined as much as 55 cents, or 0.7 percent, to $81.63 a barrel in electronic trading on the New York Mercantile Exchange. It was at $81.71 at 1:50 p.m. Singapore time. Yesterday, the contract added 24 cents to $82.18. Prices, little changed this week, have gained 3 percent since the start of the year.

The dollar climbed 0.4 percent to $1.3876 against the 16 nation euro, damping the appeal of commodities as a hedge against inflation. The yen rose against all major currencies......Read the entire article.


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

CNBC's Sharon Epperson discusses the day's top business and financial stories, and looks ahead to where oil and gold are likely headed tomorrow.



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Many have been wondering what the newly upgraded service The Gold And Oil Guy.com provides so I have put together this report so you can see the pre-market morning video, updates, charts and trades.

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Indexes, Crude Oil, Natural Gas and Gold Close Higher on the Back of the Weaker U.S. Dollar

The S&P 500 index closed slightly higher on Thursday and the mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI are overbought, diverging and are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1167.57 are needed to confirm that a short term top has been posted. If December extends the aforementioned rally, April's high crossing at 1203.00 is the next upside target. First resistance is Monday's high crossing at 1193.00. Second resistance is April's high crossing at 1203.00. First support is Wednesday's low crossing at 1167.80. Second support is the 20 day moving average crossing at 1167.58.

Crude oil closed higher on Thursday and the mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI are neutral to bullish signaling that a short term low might be in or is near. Closes above the reaction high crossing at 83.28 are needed to confirm that a low has been posted. Closes below the reaction low crossing at 79.90 are needed to confirm that a short term top has been posted. First resistance is Monday's high crossing at 83.28. Second resistance is last week's high crossing at 84.80. First support last week's low crossing at 79.90. Second support is the August-September uptrend line crossing near 78.55.

Natural gas closed sharply higher on Thursday as it extends this week's short covering rally. Stochastics and the RSI are bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 3.930 are needed to confirm that a short term low has been posted. If December renews this year's decline, weekly support crossing at 3.390 is the next downside target. First resistance is the 20 day moving average crossing at 3.930. Second resistance is the reaction high crossing at 4.207. First support is Monday's low crossing at 3.500. Second support is weekly support crossing at 3.390.

Gold closed higher due to short covering on Thursday but remains poised to extend this month's decline. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI remain neutral to 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 Monday's high crossing at 1349.50 would confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1343.40. Second resistance is Monday's high crossing at 1349.50. 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 Thursday ending a two day short covering bounce. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain 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 renews 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 Wednesday's high crossing at 78.51. 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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Phil Flynn: Crude Surge!

Let’s forget all that quantitative easing stuff for a moment and focus on some of that old time supply and demand stuff. The Energy Information Agency reported that crude oil supplies hit the highest level ever, in this county, for this time of year. Well at least since the EIA has been tracking monthly data. After a whopper build of 5.0 million barrels, we see supply hit a hefty 366.2 million barrels which according to Dow Jones newswires is the highest level of supply at this time of year since 1931. To put that in perspective, that was a year when the “Model A” was the car of choice for many Americans and Herbert Hoover was President.

Of course this bounty of crude supply did not translate to gasoline supply which according to the EIA fell 4. 4million barrels last week and probably kept the entire petroleum complex from falling totally apart. Gas exports were a contributing factor as the strike in France created an increased demand for our supply. Gasoline production increased last week, averaging 9.2 million barrels per day while imports a mere 1.0 million barrels per day. Over the last four weeks, motor gasoline demand has averaged 9.0 million barrels per day, down by 0.8 percent from the same period last year.

Distillates, according the EIA, fell by 1.6 million barrels. If the French had not been siphoning off supply, that number might have been larger. The impact of the strike influenced our demand numbers which averaged 3.9 million barrels per day over the last four weeks, up by 8.7 percent from the same period last year. Distillate fuel demand has averaged 3.9 million barrels per day over the last four weeks, up by 8.7 percent from the same period last year.

The EIA reported that refineries operated at 83.7 percent of their operable capacity last week and over all oil use hit the lowest level since December. Demand is still weak over all and may be restricted somewhat by the price spike caused by the QE2 threat! With oil trading in a tight trading range for the majority of this year it is time to get Phil's daily buy and sell points. Just call him at 800-935-6487 or email him at pflynn@pfgbest.com. You can also catch him every day on the Fox Business Network!


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ExxonMobil Beats Street

ExxonMobil is set to open higher on earnings, with Jason Gammel, Macquarie Capital USA



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Bloomberg Analysis: Crude Oil Faces Resistance at $81.74 a Barrel

Crude oil in New York is facing resistance at $81.74 a barrel, setting the stage for prices to climb to $87 or fall to $78, based on levels using Fibonacci analysis, the Schork Group Inc. said. Intra-day futures prices have straddled the 76.4 percent retracement level of $81.74 for nine of the past 11 trading sessions, Schork Group President Stephen Schork said in a report yesterday. Prices may push to the top of the Fibonacci range at $87.15, the highest price this year, or drop to $78.40, depending on whether the U.S. Federal Open Market Committee decides to buy government securities to boost economic growth.

“This is the textbook definition of sideways trading, What are the markets waiting for?” the report said. “We are waiting for the FOMC meeting and its implication for the dollar before we place our bets.” The FOMC, which makes decisions on money supply and U.S. interest rates, is set to meet on Nov. 2 and Nov. 3. A decision to buy government securities, known as quantitative easing, may cause the dollar to decline against other currencies, increasing the investment appeal of commodities. The $78.40 a barrel level for crude is the 61.8 percent retracement from the $87.15 high for the year.

Futures for December delivery on the New York Mercantile Exchange traded at $82.13, up 19 cents, at 3:21 p.m. Singapore time. Prices have risen 3.5 percent this year. The Fibonacci sequence, identified by Italian mathematician Leonardo Fibonacci in the 13th century, is used by traders in financial markets to predict points of support and resistance.

Courtesy Bloomberg News

Bloomberg reporter Christian Schmollinger can be reached at christian.s@bloomberg.net

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Musings: Iran Gaining Control of Iraq Without Firing A Shot?

In early July we wrote an article entitled “Middle East: Oil Industry’s And World’s Next Black Swan?” At that time all eyes in the oil industry and among American citizens were focused on the developments with BP’s Gulf of Mexico Macondo well, which was then spewing oil and creating one of the world’s worst environmental disasters. We suggested that maybe people should be scanning the horizon for the next industry Black Swan.

We went on to offer our best guess on what that Black Swan might be, the Middle East. We said that many people wouldn’t consider the Middle East to be a Black Swan, an unknowable and thus unanticipated event, but rather just an ignored developing trend. In that article we said: “A number of recent data points have emerged that suggest the Middle East may become a focal point of political and possibly military action before the end of the year, or maybe even earlier.”

We suggested that maybe people should be scanning the horizon for the next industry Black Swan
In July, the focus of Middle East developments was on when Iran might be able to complete building a nuclear weapon. That timetable is dependent upon the country’s ability to produce enriched uranium, which is being done in one or maybe more nuclear facilities. The buzz at that time among military and intelligence sources was that Israel was preparing an air strike to destroy Iran’s nuclear facilities as it had done a number of years earlier.

Supporting that view was Congressional testimony from Secretary of Defense Robert Gates and Central Intelligence Agency head Leon Panetta that Iran would be completing development of a nuclear weapon in one to two years time at the outside. Also revealed in Defense Secretary Gates’ testimony was that the U.S. had overhauled its NATO missile defense plans based on intelligence that Iran could fire “scores or hundreds” of missiles against Europe in salvoes rather than one or two at a time. Sec. Gates did not mention Israel in his testimony but clearly that nation is considerably closer to Iran than most of Europe......Read the entire article > Iran Gaining Control of Iraq Without Firing A Shot?



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Crude Oil Technical Outlook For Thursday Morning Oct. 28th

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

Closes above the reaction high crossing at 84.80 are needed to confirm that a short term low has been posted. If December renews last week's decline, trendline support drawn off the August-September lows crossing near 78.57 is the next downside target.

First resistance is Monday's high crossing at 83.28
Second resistance is the reaction high crossing at 84.80

Crude oil pivot point for Thursday morning 81.72

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 78.57


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Sharon Epperson: Where is Crude Oil and Gold Headed on Thursday

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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SP 500 Signals Turning Bearish, Crude Wants to Move Higher

The S&P 500 index closed lower due to profit taking on Wednesday as it consolidates some of this fall's rally. The mid range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are overbought, diverging and are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1165.21 are needed to confirm that a short term top has been posted. If December extends the aforementioned rally, April's high crossing at 1203.00 is the next upside target. First resistance is Monday's high crossing at 1193.00. Second resistance is April's high crossing at 1203.00. First support is today's low crossing at 1167.80. Second support is the 20 day moving average crossing at 1165.21.

Crude oil closed lower due to profit taking on Wednesday as it consolidates some of the decline off this month's high. The mid range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are turning bullish signaling that a short term low might be in or is near. Closes above the reaction high crossing at 84.80 are needed to confirm that a low has been posted. Closes below the reaction low crossing at 79.90 are needed to confirm that a short term top 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 78.43.

Natural gas closed slightly higher on Wednesday due to short covering as it consolidated some of this year's decline. Stochastics and the RSI are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 3.941 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 3.825. Second resistance is the 20 day moving average crossing at 3.941. First support is Monday's low crossing at 3.500. Second support is weekly support crossing at 3.390.

Gold closed lower due to profit taking on Wednesday and remains poised to extend this month's decline. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI remain neutral to 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 1345.40 would confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 1345.40. 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 higher due to short covering on Wednesday as it extends the rebound off last Friday's low. The high range close sets the stage for a steady to higher opening on Thursday. 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 today's high crossing at 78.51. 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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B.I.G. Drowning in Crude

This week’s inventory report from the department of Energy showed a huge increase of 5.007 million barrels of crude oil versus expectations for a build of 1 million barrels. Gasoline inventories, on the other hand were down 4.387million barrels versus expectations for a build of 625 thousand barrels. Finally, distillate inventories were down 1.613 million barrels, which was slightly more than the forecast for a draw of 1.5 million barrels.

Below we highlight the weekly stockpiles of crude oil, gasoline, and distillates so far this year and compare them to their historical average. As shown in the charts, while stockpiles have been above average all year for all three, distillates and gasoline have been following their typical seasonal patterns. Crude oil, however, is a different story. As shown, not only have inventory levels of crude been above average all year, but they haven’t been following the seasonal script either. While they should have been declining over the last several months, stockpiles have actually remained relatively unchanged. With today’s large build, crude oil stockpiles are now at their highest point of 2010, and at a higher point relative to the historical average than at any other point this year.

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Phil Flynn: Shock and Bore

Promises, promises, quantitative easing the act of printing money to add excess money supply to the banking system by central banks to create inflation to combat deflation has been the policy tool that the Federal Reserve has used to in their mind have us avoid a “Great Depression”. Of course with the economy still sputtering and jobs growth anemic the Fed wants to do it to you one more time. The talk of “Quantitative Easing 2” by your Federal Reserve has been the overriding global economic force that driven the price of just about everything on the globe whether it be commodities or equities or bonds.

The anticipation of the Fed’s awesome money printing power has had the world markets giddy with excitement as they search for clues how the Fed was going to wow this moribund economy into a vibrant job creating monster. Yet if the Wall Street Journal is right then instead of QE2 being compared to a luxury liner it appears now that the market may compare it to a dingy. The Wall Street Journal is moving markets by reporting that the Federal Reserve is likely to unveil a program of US Treasury Bond Purchases worth a few hundred billion dollars over several months. A measured approach in contrast to.....Read the entire article.


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Oil N'Gold: Risk-Off Trades Dominate, Commodities Slump as USD Strengthens

Risk appetite remained weak in European session amid concerns about 'measured QE' policies. The dollar strengthened while growth currencies and other risk assets plunged. Aussie tumbled as inflation missed expectations. Focus in the US session will be on durable goods orders, new home sales and oil inventory data. Commodities fell across the board. The front month contract for WTI crude oil slipped below 82 ahead of official oil inventory report. Precious metals and base metals also slumped on profit taking.

The Wall Street Journal said that the Fed will likely announce a bond purchase program, worth a few hundred billion dollar spanning over several months, at the FOMC next week. The amount would be significantly lower than market expectations of at least $500B over 5 months. Investors took profits from previous 'short USD' trades as the selloff was probably over extended with such a 'small' amount of QE.

Currently trading at 0.9715, Australian dollar plummeted for a second day against the dollar as CPI surprisingly eased to +2.8% y/y in 3Q10 from +3.1% a quarter ago. This may prolong RBA's pause in tightening. Other commodity currencies, New Zealand and Canadian dollars also fell. The RBNZ will leave the official cash rate......Read the entire article.


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Crude Oil Technical Outlook For Wednesday Morning Oct. 27th

Crude oil was lower overnight as it consolidates some of the rebound off last week's low. However, stochastics and the RSI are turning bullish signaling that sideways to higher prices are still possible near term.

Closes above the reaction high crossing at 84.80 are needed to confirm that a short term low has been posted. If December renews last week's decline, trendline support drawn off the August-September lows crossing near 78.38 is the next downside target.

First resistance is Monday's high crossing at 83.28
Second resistance is the reaction high crossing at 84.80

Crude oil pivot point for Wednesday morning is 82.41

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 78.38




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