THE ENERGY OVERVIEW
DAILY TOTALVIEW
January 3, 2011
Michael Fitzpatrick – Editor-in-Chief
212-618-2107
Email: [email protected]
Twitter: @EnergyO
| Early Ticker | Last | Change | Bias | Action Recommendation |
| CLG1 | 92.00 | 0.60 | Bullishshort-term | BULLISH – Weak conviction. Add moderately to existing length or near-dated call options |
| XBG1 | 2.4288 | 0.0178 | Bullishshort-term | BULLISH – Weak conviction. Add moderately to existing length or near-dated call options. |
| HOG1 | 2.5680 | 0.0252 | Bullishshort-term | BULLISH – Weak conviction. Add moderately to existing length or near-dated call options. |
| NGG1 | 4.550 | 0.16 | Neutral to Bearish | NEUTRAL. Most vulnerable of the complex to sell-off and failure at new high. |
Readers: We are pleased to bring back the Energy Overview, which has been continuously published for over fifteen years. Your feedback and suggestions are most welcome!
We will be expanding its content with notable news items and other feature items.
Thank you for loyalty and support over the years. – Mike.
Happy New Year!
PETROLEUM MARKETS
The reversal back up on New Year’s Eve after Thursday’s losses shows that the market has considerable inherent strength and momentum, which is carrying into Q1. New commodity focused investment dollars are being put to work to kick off the New Year. This money is helping to reinforce the idea that economic resurgence in the developed world accompanied by continued strength in Asia will boost demand has possessed market participants’ intellectual focus, as open interest reached a contract high on Friday. The next obstacle will be 93.87 from last year and there should be a significant amount of skittishness as that number is approached, particularly if the dollar stabilizes and moves higher which it should if the rosy predictions about the economy come to fruition. Still, every item seems to be interpreted bullishly despite relatively high stockpiles. This still speaks very loudly to a premium over simple supply and demand calculations, a condition very like those when the run to $150 occurred in 2008. Technical analysis also leads to a conclusion that prices will move higher as well. The test will be the dollar. Once it begins to move higher this premium should begin to erode as less risky asset classes begin to accommodate the macro bulls. Keep one eye on the market and the other on the dollar.
TECH TALK: The crude chart presents as decidedly bullish. Prices are above the 10, 40 and 200 day moving averages at 90.80, 87.75 and 83.22 respectively, which means there is an active buy signal. The closeness of the 10 and 40 day marks though show the upward but generally sideways movement of the market since the May slide to the low 70s and this is where we put major support. Next resistance will be the point of departure for that break, the May 3rd high of 93.87.
NATURAL GAS
Gas prices will enter the New Year and Q1 near the top of the current trading range around 4.50, mostly because forecasts show colder-than-normal temperatures in key heating regions in January. Overall, prices were down 21% for 2010, as a consequence of a fragile recovery, a relatively light hurricane season and continued oversupply. The manifestation of shale gas has proven transformational within the industry. There will probably not be a runaway rally pressing $5.00 and $6.00 because the problems of oversupply and economic malaise are structural in nature, and solutions will come only after an elongated process. There will, of course, be knee-jerk reactions to events such as today’s rise so far, which is a reaction to single digit thermometer readings in the Midwest and later in the year, hurricanes. The rather sizable range, so far, and prices trading above the pivot and the major moving averages suggest a long entry, but a reversal could occur quickly and offer little opportunity for escape. In fact, today’s gap opening may turn into an island top.
TECH TALK: Gas presents a little different interpretation even though, like crude oil, it is above its major moving averages as well as today’s pivot point of 4.388. Still, the market is flirting with a major resistance zone as defined by the December 9th high of 4.635. In fact, 4.50-4.60 represents a major zone of resistance. An examination of the continuation chart shows that this level has been tested several during Q3. Given the oversupply this may be a prime selling opportunity, to be stopped out if a new high is posted.