Weekly Crude Oil, Natural Gas and Gold Technical Outlook for Sunday October 14th

Time for our weekly visit with the staff at Oil N' Gold.com to get their call on crude oil, natural gas and gold......

Despite a brief breach, crude oil failed to stay above 93.33 minor resistance and thus, near term outlook remains unchanged. The fall from 100.42 is still in favor to continue for 61.8% retracement of 77.28 to 100.42 at 86.12 and possibly below. Though, in that case, we'd expect strong support ahead of 77.28 to contain downside. Meanwhile, break of 93.33 will flip bias to the upside for a test on 100.42 resistance.

In the bigger picture, current development suggests that price actions from 114.83 are a triangle consolidation pattern. Fall from 100.42 is likely the fifth and the last leg of such consolidation. Having said that, downside should be contained above 77.28 and bring an upside breakout eventually. Break of 110.55 will strongly suggest that whole rebound from 33.29 has resumed for above 114.83.

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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Natural gas' rally continued last week and reached as high as 3.638 so far. Near term outlook stay bullish as long as 3.327 support holds. Current rise from 1.902 is expected to continue towards medium term channel resistance next (now at around 3.94).

In the bigger picture, the strong break of 55 weeks EMA, as well as the break of 3.255 support turned resistance indicates that medium term decline from 6.108 is completed at 1.902 already. It's bit early to confirm but bullish convergence condition in weekly MACD suggests that the down trend from 13.694 (2008 high) is possibly over too. Sustained break of the channel resistance (now at around 3.94) will set the stage for a test on 4.983 key resistance next. Meanwhile, break of 2.575 support will argue that the rebound from 1.902 is over and the medium larger down trend is still in progress for a new low.

In the longer term picture, decisive break of 3.255 resistance will be an important signal of long term bottoming reversal and could at least give a push to 4.983/6.108 resistance zone.

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Gold's correction from 1798.1 continued last week. Further decline could be seen. But as long as 1720 minor support holds, current rise is still expected to continue. Decisive break of 1792.7/1804.4 resistance zone will have larger bullish implication and would pave the way to 1923.7 historical high. Though, break of 1720 will indicate near term reversal and will turn outlook bearish for 1674/1 support first.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7/1804.4 resistance zone will argue that the long term uptrend is possibly resuming for a new high above 1923.7.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run.

Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Dodd-Frank Poses Unique Challenges for Energy Firms

New Dodd-Frank financial regulation poses unique challenges for energy companies, forcing them to establish proper compliance and regulatory reporting mechanisms and making sure they have the right people to carry out these tasks, industry consultant Mayra Rodriguez Valladares said in a report.

Energy and other commodity businesses recently caught a break when a U.S. District Court judge ruled against a Dodd-Frank provision on trading position limits. But because Dodd-Frank focuses substantially on regulating over the counter derivatives and making them more transparent, companies using energy derivatives will be impacted just as much, if not more so, than banks in some ways, she said.

"For energy companies, the biggest challenge will be juggling how to live in an environment of uncertainty and possible increases in costs," Valladares wrote in the first of a series of reports on Dodd-Frank's potential impact on various sectors of the business world.

Valladares, a CME Group featured contributor, is managing principal with MRV Associates, a New York based capital markets and financial regulatory consulting firm.

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New Application of Existing Techniques in Old Fields Helps Russia Increase Oil Production

Russia was the world's largest producer of crude oil in 2011. As Russia's use of multistage hydraulic fracturing and horizontal drilling has increased, preliminary Russian crude oil production figures indicate that production has risen in 2012.

West Siberia, Russia's main producing region, accounts for around 6.5 million barrels per day (bbl/d) of liquids production, nearly two thirds of Russia's total production. While this region is mature, new applications of existing technologies have boosted recovery rates at oil fields that had stopped growing or begun declining.

TNK-BP has announced that it is the first company in Russia to apply a unique improved multistage fracturing technology to develop reserves in mature oilfields in West Siberia. A pilot at the Samotlor oil field has tested a six-stage hydraulic fracturing technology, which resulted in reduced well completion times and increased reservoir productivity. TNK-BP now plans to expand the pilot project to 25 more wells in the Samotlor field by the end of 2012, and, starting in 2013, the company plans to use the technology to fracture about 50 horizontal wells each year across its subsidiaries in Western Siberia.

 

Production from Samotlor, which accounts for about one-quarter of TNK-BP's output, fell 7% in 2011. The drop was low, however, compared to previous years, indicating that the field's future annual declines may be less severe. Continued use of multistage hydraulic fracturing may result in a decline rate of only 1% by 2016.

In addition to TNK-BP, LUKoil is fighting declining crude oil production in the region using multistage hydraulic fracturing at its Tevlinsko-Russkinskoye, Uryevskoye, Vat-Yeganskoye, and Pokachevskoye fields in Western Siberia. According to LUKoil, use of this technique led to a halt in field declines, although the use of the technology may be limited because of its high cost.

LUKoil and TNK-BP were the second- and third-largest producers of oil in Russia in 2010 at approximately 1.8 and 1.4 million bbl/d, respectively.

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Crude Kickbacks Between China and Venezuela

Venezuelan President Hugo Chavez has been in power for 14 years. On Sunday he earned the right to remain there for another six (though he’s battling cancer).

Chavez is often characterized as a dictator, but the truth is, Venezuela’s election process has been lauded by international observers. So if not through brute force, how does a president, whose country has the world’s highest rate of inflation (28%) and a soaring crime rate, win re-election?

Answer: He buys it....Read the entire EconMatters article


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Musings: Is America Knocking On The Door Of Energy Independence?

A phrase introduced into the modern lexicon by President Richard Nixon in the early 1970s was "energy independence". Ever since then, as the nation's domestic oil production declined and our natural gas output stagnated resulting in ever increasing imports of foreign oil and Canadian gas, national politicians campaigned on plans to make America energy independent.

Nearly 40 years after President Nixon uttered the phrase, the shale revolution has transformed America's petroleum industry into an engine for hydrocarbon production growth. With that additional oil and gas production, America's dependence on petroleum imports has declined. Increasingly, not only are the politicians talking about energy independence, but energy industry executives along with energy economists and consultants are also openly talking about the day when the U.S. meets all its power needs from domestic resources.

In late September, the Energy Information Administration (EIA) released data showing weekly domestic crude oil production had reached the highest level since January 1997, some 15 years ago. Reports are that despite the slowdown in drilling in the Bakken formation in North Dakota and Montana, production there should continue to rise during the second half of 2012.

Two charts demonstrate the significance of the increase in domestic production. The first chart shows the weekly estimate of domestic crude oil production since January 1990 with a red line showing how the September 21 data compares with production in early January 1997.......Let's go to the charts.
 

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EIA Natural gas Weekly Update for Week Ending Wednesday 10-10-2012

Natural gas prices rise in Midwest, Rocky Mountains, and Pacific Northwest, fall in California. The Henry Hub spot price rose from $3.21 per MMBtu last Wednesday to $3.26 yesterday, an increase of 5 cents per MMBtu, or 1.5 percent.

Spot prices at the Chicago Citygate (Midwest), Kern River (Rocky Mountains), and Northwest Sumas (Pacific Northwest) trading points increased for the week ending yesterday by 12 cents, 17 cents, and 20 cents per MMBtu, respectively. These increases were a less pronounced continuation of those seen last week at these trading points, likely due to cooling temperatures.

* Natural gas price changes at key trading points were mixed for the report week (Wednesday to Wednesday). The Henry Hub spot price closed at $3.26 per million British thermal units (MMBtu) yesterday, up 5 cents per MMBtu for the week. Spot prices rose in the Midwest, Rocky Mountains, and Pacific Northwest, while falling in Southern California and remaining unchanged in the Northeast.

* The November 2012 New York Mercantile Exchange (NYMEX) edged upwards by 8 cents per MMBtu, from $3.395 per MMBtu last Wednesday to $3.475 per MMBtu yesterday.

* Working natural gas in storage rose last week to 3,725 billion cubic feet (Bcf) as of Friday, October 5, according to EIA's Weekly Natural Gas Storage Report (WNGSR). An implied storage build of 72 Bcf for the week moved storage levels 236 Bcf above year ago levels.

* The Baker Hughes Incorporated natural gas rotary rig count increased by 2 to 437 active units on the week ending October 5. The oil directed rig count fell by 12 to 1,398 units.

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Check out Bill Gross Says Gold Will Thrive in ‘Ring of Fire’

Bill Gross Says Gold Will Thrive in ‘Ring of Fire’

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Bill Gross is one of the most recognizable names in the investment world. He is the founder and co chief investment officer at bond fund giant PIMCO. His long term track record regarding bonds is among the best and he still runs the world’s biggest bond fund, the PIMCO Total Return Fund.

Gross is also known for speaking quite bluntly about the United States’ growing debt problem. His latest monthly market commentary came with a warning for the U.S. and investors alike. Gross stated that a number of recent studies have concluded that “The U.S. balance sheet, its deficit and its ‘fiscal gap’ is in flames and that its fire department is apparently asleep at the station house.”

The recent studies Gross pointed to came from the Congressional Budget Office, the International Monetary Fund and the Bank of International Settlements. The studies calculated that the United States needs to cut spending or raise taxes by 11% of GDP over the next 5-10 years. This translates to $1.6 trillion per year. That compares to the country’s 8% of GDP deficit in 2011. Those numbers put the U.S. in the ‘ring of fire’ with other countries with similar fiscal gap sizes. These countries include Greece, Spain, Japan, France and the U.K.

Gross warned that the U.S. debt problems have put the country in this “ring of fire” that will burn most investors. The only investors who will not get “burned”? He says the lucky few will be those that are protected by gold and other real assets, protected from a severe U.S. dollar depreciation caused by the Federal Reserve’s money printing.

In a white paper titled “GOLD – The Simple Facts” posted on PIMCO’s website, PIMCO analysts Nicholas J. Johnson and Mihir P. Worah also said some interesting things. Here is an excerpt, “Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.” They pointed out the positive supply/demand characteristics of gold as a big plus in their scenario. The PIMCO analysts went on to say, “We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio.”

That is quite a statement coming from a “mainstream” investment firm. Wall Street’s usual reaction to gold is that it is a barbarous relic whose only use is in jewelry and that no sane investor should put any money into it, even paper gold instruments such as gold ETFs like the SPDR Gold Shares (NYSE: GLD) and others.

After Bill Gross’ bullish words, gold prices were trading a 7 month high on Thursday before falling Friday to finish the week at about $1776.00 an ounce.

From a technical analysis point of view gold, silver and gold miners have been holding value at key resistance levels. While we could see a 3-5% pullback before they breakout and start the next rally overall the outlook for precious metals remains very strong and I put a $2400 per ounce on gold for 2013.

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Chris Vermeulen

The New Normal for U.S. Geopolitics

Posted courtesy of our friends at EconMatters.....

Over the past weekend, rumors began to emerge that the Syrian opposition would allow elements of the al Assad regime to remain in Syria and participate in the new government. Rumors have become Syria's prime export, and as such they should not be taken too seriously. Nevertheless, what is happening in Syria is significant for a new foreign doctrine emerging in the United States, a doctrine in which the United States does not take primary responsibility for events, but which allows regional crises to play out until a new regional balance is reached. Whether a good or bad policy, and that is partly what the U.S. presidential race is about, it is real, and it flows from lessons learned.

Threats against the United States are many and complex, but Washington's main priority is ensuring that none of those threats challenge its fundamental interests. Somewhat simplistically, this boils down to mitigating threats against U.S. control of the seas by preventing the emergence of a Eurasian power able to marshal resources toward that end. It also includes preventing the development of a substantial intercontinental nuclear capability that could threaten the United States if a country is undeterred by U.S. military power for whatever reason. There are obviously other interests, but certainly these interests are fundamental.

Therefore, U.S. interest in what is happening in the Western Pacific is understandable.....Read the entire article.

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EIA: Territorial Disputes Hamper Exploration and Production of Resources in the East China Sea

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The East China Sea may have abundant hydrocarbon resources, especially natural gas, although the region is underexplored. China and Japan, the two largest energy consumers in Asia, are both interested in using natural gas from the East China Sea to meet rising domestic demand. However, unresolved territorial disputes make exploration and development of these resources difficult.

China is the world's largest energy consumer and the second largest importer of oil after the United States. Because of its growing reliance on natural gas in recent years, China is now a net importer of natural gas. EIA forecasts continued growth in Chinese oil and natural gas consumption, necessitating new supplies to meet demand.

Japan is the world's third largest net importer of crude oil, and the world's largest importer of liquefied natural gas. Japan is expected to continue to rely heavily on imports to meet future consumption needs.

Hydrocarbon reserves in the East China Sea are difficult to estimate, but EIA estimates the East China Sea contains 60-100 million barrels of oil in proven and probable reserves, and 1-2 trillion cubic feet (Tcf) of proven and probable natural gas reserves. Estimates of undiscovered resources, which do not take into account economic and technological factors relevant to bringing them into production, show significant resource potential. Chinese sources estimate as much as 70-160 billion barrels of oil and 250 Tcf of natural gas in undiscovered, technically recoverable resources.

Chinese authorities seek to increase offshore natural gas production to supply Shanghai and nearby cities. However, the East China Sea is not expected to become a significant supplier of oil for a number of years, even after resolution of the territorial disputes.

China and Japan have two separate territorial disputes in the East China Sea: where to demarcate the sea boundary between each country and how to assign sovereignty over a group of islands called Diaoyu by the Chinese and Senkaku by the Japanese. The two countries have held bilateral talks, as well as considered joint development of resources in the Sea, with no agreement thus far.

Further exploration and development in this region may be hampered until these disputes are resolved. For more information on the East China Sea, read EIA's regional analysis brief.

70 Second Market Outlook – Metals, Dollar, Bonds, Stocks, Energy

Over the past year we have had some really interesting things unfold in the market. Investing or even swing trading has been much more difficult because of all the wild economic data and daily headline news from all over the globe causing strong surges or sell offs almost every week.

For a while there you could not hold a position for more than a week without some type of news event moving the market enough to either push you deep in the money or get stopped out for a loss. This has unfortunately caused a lot of individuals to give up on trading which is not a good sign for the financial market as a whole.

The key to navigating stocks which everyone thinks are overbought is to trade small position sizes and focus on the shorter time frames like the 4 hour charts. This chart is my secret weapon and giving you both large price swings which daily chart traders focus on while also showing clear intraday patterns to spot reversals or continuation patterns with precise entry/exit points.

While I could ramble on about why the stock market is primed for major long term growth from this point forward I will keep things short and simple with some 4 hour and daily charts for you to see what I see and what I am thinking should unfold moving forward.

Keep in mind, the most accurate trading opportunities that happen week after week are the quick shifts in sentiment which only last 2-5 days at most which is what most of my charts below are focusing on…..

Dollar Index – 4 Hour Chart

This chart shows a mini Head & Shoulders reversal pattern and likely target over the next five sessions. The dollar index has been driving the market for the past couple years so a lower dollar means higher stock and commodity prices.

Bond Futures – 4 Hour Chart

Money has been flowing into bonds for the past couple weeks with most traders and investors expecting a strong correction in stocks. As you can see the price of bonds hit resistance this week and as of Thursday has now started selling off. Money flowing out of this “Risk Off” asset means money will move to the “Risk On” investments like stocks and commodities.

Gold Futures – Daily Chart

Gold is stuck in both categories in my opinion. It is a “Risk Off” safe haven when people are scared of falling stock prices, and it is also a “Risk On” speculative investment when people are feeling good about the market. Gold has been trading at key resistance for a couple weeks and looks as though it’s starting its next rally.

Silver Futures – Daily Chart

Silver is in the same boat as gold though it carries much more volatility than gold. Expect 2-4% swings regularly and sloppy chart patterns in this metal.

SP500 Futures – Daily Chart

As much as everyone hates to buy stocks up at these lofty prices I hate to say it but I think they are going to keep going up and they could do this for a long time yet. If the dollar index continues to break down then I expect the SP500 to rally another 3% from here (1500) in the next 1-2 weeks.

Crude Oil Futures – 4 Hour Chart

Crude oil has not had much attention from me in the past few months. While it has had big price action many of those big days took place on news causing an instant price movement making this extra dangerous to trade. I continue to watch rather than get attached to it.

Natural Gas Futures – Daily Chart

Natural gas has been a great performer for us in the past 6 months as all the short positions slowly get covered. I just closed out my natural gas ETF trade this week with a 31.9% gain and plan on getting back in once the chart provides another low risk setup.

Trading Conclusion:

In short, I feel the dollar index along with bonds will correct over the next few weeks. That will trigger buying in stocks and commodities. Keep in mind natural gas dances to its own drum beat. The dollar does not have much affect on its price and most times natural gas is doing the opposite of the broad market.

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Chris Vermeulen

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