The Crude Oil Trader

Tuesday, November 30, 2010

Debt Contagion Spreads to Italy, Belgium. Global Markets Tumble

Financial markets remained under pressure with Wall Street tumbling and the dollar soaring to a 2 1/2 month high against the euro. Debt contagion accelerated further in the European periphery. In bond markets, US Treasuries and German bunds strengthened while Spanish and Italian yield spreads widened to record highs. In the commodity sector, oil prices plummeted as bourses weakened. Moreover, industry report showed that oil inventories rose last week. The front month contract for WTI crude oil slipped to as low as 83.55 before closing at 84.11, down -1.89%. Precious metals rose across the board with the benchmark gold contract surging +1.47% to settle at 1386.1. Benchmark contracts for silver, platinum and palladium also gained +3.91%, 1.33% and 1.17% respectively.

Sovereign concerns about debt-ridden European countries remained elevated even though a bailout program of 85B euro for Ireland has been approved. The rescue program's impacts on easing worries were short-lived and the market soon began speculating Portugal as the next country following Ireland to seek help from EU/IMF. Look at bond markets, yield spreads between peripheral European bonds and German bunds continued to widen. While Greek and Irish spreads were the widest, Spanish and Italian spreads accelerated and reached record highs. A similar picture was seen in CDS spreads and we find it particularly interesting that Italian and Belgium spreads were widening fast.

In Asia, China reported the Purchasing Managers' Index (PMI) expanded to 55.2 in November from 54.7 a month ago. This is the strongest reading in 7 months and signaled the country's manufacturing activities have been growing robustly despite the government measures. Asian shares fluctuated after the report. While investors were encouraged by the strong growth, it also fueled tightening concerns as the government may accelerate measures to control inflation.

Gauges for manufacturing activities will also be released in Europe and the US later. In the US, ISM manufacturing index probably eased to 56.5 in November from 56.9 a month ago. We will also get some employment data in the NY session. ADP will probably report +65K addition of payrolls last month while Challenger's estimates for job cuts may have been lowered from 31.8% in October.

We will also get EIA's weekly oil inventory report. The market forecasts crude and distillate inventories fell while gasoline stockpiles gained in the week ended November 26. The industry-sponsored API estimated crude inventory drew -1.4 mmb while both gasoline and distillate recorded stock builds.

Let's Look at The Charts....5 Year Sovereign CDS Spread and 10 Year Yield Spreads

New Video: Where is Gold Headed and How Can You Prepare?

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Commodity Corner: Crude Oil Tumbles on Lingering Debt Concerns

Light, sweet crude futures fell Tuesday as concern over the European debt crisis resurfaced after the euro plummeted to its lowest level in 10 weeks. Led by declines in heating oil and gasoline futures [which expired at close] and crude oil tumbled more than a dollar a barrel in the last half hour of Tuesday's trading session. Oil prices for January delivery settled at $84.11 a barrel, 1.9 percent lower than Monday.

Fear lingers as investors worry that other countries, such as Spain, Portugal, or Italy, might also need financial assistance after Ireland’s massive bailout package earlier this week. The euro lost 0.9 percent Tuesday, hitting a two month low against the dollar. The greenback rose 0.5 percent on the U.S. dollar index, which gauges the dollar to an array of six other currencies. As the dollar strengthens, crude becomes more expensive for foreign buyers and dollar denominated commodities lose their appeal.

The intraday range for crude futures was $83.55 to $85.90 Tuesday. Front month December gasoline settled nearly two cents lower at $2.26 a gallon on the New York Mercantile Exchange. The December contract for gasoline expired at Tuesday's settlement. In spite of the global economic crisis, gasoline gained 6.3 percent this month the largest since September. Gasoline fluctuated between $2.23 and $2.28 Tuesday.

Natural gas futures also tumbled Tuesday, as stockpiles exceeded expectations of an increase in heating demand due to the forecasted colder than normal temperatures. Although natural gas prices typically correlate with heating demand in the winter, analysts predict that the surplus in supplies has limited rallies; however, they remain uncertain about long term predictions. January Natural gas traded lower for the second consecutive session at $4.18 per thousand cubic feet. It peaked at $4.25 and bottomed out at $4.13 Tuesday.

Posted courtesy of Rigzone.Com

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

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil and gold are likely headed Friday.

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Stock Market and Commodities Commentary For Tuesday Evening Nov. 30th

The S&P 500 index closed lower on Tuesday and the low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If December renews the decline off this month's high, the 25% retracement level of the July-November rally crossing at 1169.37 is the next downside target. Closes above last Monday's high crossing at 1206.00 would temper the near term bearish outlook. First resistance is last Monday's high crossing at 1206.00. Second resistance is this month's high crossing at 1224.50. First support is the reaction low crossing at 1175.20. Second support is the 25% retracement level of the July-November rally crossing at 1169.37.

Crude oil closed lower due to profit taking on Tuesday as it consolidates some of last week's rally. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. If January extends the aforementioned rally, November's high crossing at 89.10 is the next upside target. Closes below the 10 day moving average crossing at 82.88 would temper the friendly outlook. First resistance is today's high crossing at 85.90 Second resistance is November's high crossing at 89.10. First support is the 10 day moving average crossing at 82.88. Second support is last Tuesday's low crossing at 80.28.

Natural gas closed lower on Tuesday as it consolidates some of the rally off November's low. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near term. Multiple closes below the 20 day moving average crossing at 4.211 are needed to confirm that a short term top has been posted. If January extends the rally off October's low, the 38% retracement level of the June-October decline crossing at 4.654 is the next upside target. First resistance is last Wednesday's high crossing at 4.515. Second resistance is the 38% retracement level of the June-October decline crossing at 4.654. First support is today's low crossing at 4.126. Second support is November's low crossing at 3.853.

Gold closed higher on Tuesday as it extends the rally off November's low. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term. If December extends the rally off November's low, November's high crossing at 1424.30 is the next upside target. If December renews the decline off November's high, the reaction low crossing at 1315.60 is the next downside target. First resistance is today's high crossing at 1390.10. Second resistance is November's high crossing at 1424.30. First support is the reaction low crossing at 1329.00. Second support is the reaction low crossing at 1315.60.

The U.S. Dollar closed higher on Tuesday as it extends this month's rally. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If December extends this month's rally, the 50% retracement level of this year's decline crossing at 82.18 is the next upside target. Closes below the 20 day moving average crossing at 78.69 would confirm that a short term top has been posted. First resistance is today's high crossing at 81.53. Second resistance is the 50% retracement level of this year's decline crossing at 82.18. First support is the 10 day moving average crossing at 79.73. Second support is the 20 day moving average crossing at 78.69.

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ConocoPhillips Is Cheaper Than Rivals but Has Plenty to Prove

From Y Charts.Com......

Oil prices are creeping back up, mirroring the expanding (if still sickly) global economy, and so one wonders: which major oil company to buy?

Exxon Mobil (XOM) and Chevron (CVX) are well managed, diversified and trading at bargain prices, according to YCharts Pro Ratings. But ConocoPhillips (COP), which lags behind its bigger rivals, is by some measures even cheaper. All the company has to do is make good on its many promises, which, of course, is easier said than done.

On a price to sales basis, ConocoPhillips looks like a steal. Its p/e ratio is also super low. And if you’re making comparisons to bond yields, ConocoPhillips’ earnings yield puts most junk bonds to shame. All that disrespect by investors means ConocoPhillips’ dividend yield is pretty rich, too. Why so cheap? Well, ConocoPhillips carries a higher debt load than its bigger rivals. And it holds less cash, though recent sales of LUKOIL shares have fattened the cash account.

And even though the company is eight years into the merger of Conoco and Phillips, there are signs it’s still working to get its act together. CEO James J. Mulva, though he’s nearing age 65, swept much of top management out the door in early October, bringing in some outside talent. And Mulva is pushing a financial strategy, reduced capital expenditures, debt reduction, rising buybacks and dividends, that seems like the right idea, but perhaps a little late in arriving.

ConocoPhillips has more oil and gas properties around the world than it can reasonably develop, so it is selling some to raise cash and pay down debt. Super, though the assets might have fetched more when oil prices were sky high a few years back. And like all major oil companies, ConocoPhillips faces the daunting task of replacing the oil and gas it pumps and sells each year, a task that is growing ever riskier and more expensive.

So, when oil prices surge, and they will, you might get a little extra bounce with shares of unloved ConocoPhillips, though Exxon and Chevron will certainly rise, as well. Warren Buffett bought ConocoPhillips in the low $70s, so you can buy it more cheaply. The Berkshire Hathaway (BRK.A) CEO overpaid because oil prices soon fell. But relative to other major oil companies, did he see a bargain?

Here's the Y charts showing the comparison to Exxon and Chevron

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Crude Oil Retreats amid Rate Hike Concerns in China

Heightened speculations on rate hikes in China have weighed on financial markets. Asian equities plunged amid worries that slowdown in Chinese growth will affect corporate profits while European bourses fluctuated between gains and losses. In the commodity sector, the front month contract for WTI crude oil fell after faltering below 86. Gold, however, climbed for another day to as high as 1377. Sovereign woes in the European periphery remained under the spotlight.

The market focus has once again turned to China. Zhong Jiyin, an economist with the Chinese Academy of Social Sciences wrote in China Daily that the country needs to raise interest rates by another 200 bps to curb inflation, given existing excess liquidity. Although the government has implemented a series of measures, including increasing RRR and raising margins for certain commodity futures, the impacts on inflation are not significant and CPI rose to 4.4% y/y in October, The market has been speculating that a rate hike can come over the next few weeks. According to Zhong, raising RRR may help ease the situation but is 'not enough to reverse it. The increase in the required reserve ratios for banks can prevent the rise of excess liquidity and ensure that the situation does not deteriorate further'. It will 'do little to get rid of the existing excess liquidity. Increasing interest rates is a common measure taken to check inflation'.

In Europe, it's obvious that the bailout for Ireland failed to stem contagion. The market currently expects the EU will need to rescue more peripheral European countries with Portugal being the one after Ireland. Indeed, apart from Portugal, CDS spreads and yield spreads between Spanish/Italian bonds and German bunds have continued to soar. According to Bloomberg news, Spain's banks may struggle to refinance about 85B euro in debt in 2011 and this may trigger the country to seek a bailout from EU/IMF.

China' rate hike and European sovereign concerns have dominated the headlines, overshadowing macroeconomic data. Germany's unemployment fell -9K to 3.14M, the lowest level since December 1992, in November. Unemployment rate stayed unchanged at 7.5%. We will have housing, manufacturing and confidence data in the NY session. Growth in S&P/Case-Shiller Composite 20 index may have eased to +1% in September. Chicago Fed will report its manufacturing PMI which probably dipped -0.7 to 59.9 in November. Consumer Confidence is expected to have improved to 52.7 in November from 50.2 in the prior month.

Posted courtesy of Oil N'Gold

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New Video: Where is Gold Headed and How Can You Prepare?

The gold market has been pushing out its normal level of frustration and anxiety for the past several weeks.

So the question becomes, is the gold market pausing to move higher, and of course the Bulls would argue this, or is it forming the head and shoulders top that many technicians are looking for? Of course, this would be a bearish sign for gold if this technical formation is completed.

We've just finished a short video that shows you what we're looking at right now in gold and how I think it is going to be resolved. The video is a little over 2 minutes. It's quick and to the point while supplying you with what you need to take your place in or out of this market.

Just Click Here to Watch today's video "Where is Gold Headed and How Can You Prepare?"

You may also wish to attend our gold webinar which we are holding on the 2nd of December at 4 PM EST. The webinar is free of charge, but you need to register in order to attend. This is no hype, but we have limited space and it will be on a first come first served basis. The important thing is that you register as soon as possible.

Here is the link to register for the webinar

While you do need to register to attend our gold webinar, in order to watch today's short video no registration is required nor is there any charge.

We hope to see you at this week's Gold webinar so don't forget to register.

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Crude oil was lower due to profit taking overnight as it consolidates some of last week's rebound off the 50% retracement level of the August-November rally crossing at 81.14. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

If January extends the rally off last week's low, November's high crossing at 89.10 is the next upside target. Closes below the 10 day moving average crossing at 83.00 would temper the near term friendly outlook.

First resistance is the overnight high crossing at 85.90
Second resistance is November's high crossing at 89.10

Crude oil pivot point for Tuesday morning is 85.07

First support is the 10 day moving average crossing at 83.00
Second support is last Tuesday's low crossing at 80.28

Natural gas was higher overnight as it consolidates some of Monday's decline. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 4.213 are needed to confirm that a short term top has been posted. If January renews this month's rally, the 38% retracement level of the June-October decline crossing at 4.654 is the next upside target.

First resistance is last week's high crossing at 4.515.
Second resistance is the 38% retracement level of the June-October decline crossing at 4.654.

Natural gas pivot point for Tuesday is 4.288

First support is Monday's low crossing at 4.166.
Second support is November's low crossing at 3.853.

Gold was higher overnight as it continues to rebound off the mid-November low. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term.

If December extends the rebound off the mid-November low, the reaction high crossing at 1388.10 is the next upside target. If December renews this month's decline, the reaction low crossing at 1315.60 is the next downside target.

First resistance is last Tuesday's high crossing at 1382.90
Second resistance is this month's high crossing at 1424.30

Gold pivot point for Tuesday morning is 1,362.60

First support is the 25% retracement level of this year's rally crossing at 1330.20
Second support is the reaction low crossing at 1315.60

Commodity Corner: Crude Oil Begins Week Much Higher

A weaker equities market and a stronger dollar failed to place downward pressure on crude oil Monday. Crude oil for January delivery gained $1.97 to settle at $85.75 a barrel during a trading day influenced by factors ranging from oil products demand to the release of politically sensitive information attributed to U.S. State Department officials. In the latter case, ongoing fallout from the widespread leaks has heightened perceived geopolitical risks.

Exacerbating the geopolitical situation have been escalating tensions between North and South Korea as well as continued speculation about Europe's debt crises. Although the European Union approved a EUR85 billion bailout for Ireland over the weekend, there are fears that other heavily indebted countries such as Spain and Portugal will be next in line for massive financial aid packages. In addition, tightening inventories of gasoline contributed to oil's rally Monday. December gasoline ended the day seven cents higher at $2.28 a gallon

Oil traded within a range from $83.59 to $85.54. Gasoline, meanwhile, peaked at $2.29 and bottomed out at $2.21. Despite a chillier than normal forecast for the Northeast, January natural gas fell 19 cents to settle at $4.21 per thousand cubic feet. The natural gas futures price fluctuated from $4.17 to $4.49.

Posted courtesy of Rigzone.Com

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