THE ENERGY OVERVIEW
DAILY TOTALVIEW
January 5, 2011
By: Michael Fitzpatrick – Editor-in-Chief Twitter: @EnergyO
[email protected] @KilduffReport
212-618-2107
ALERT: ADP reports private employment jumped 297k – triple forecasts.
Correlation with Friday’s BLS number has not been good, but data squares with recent improvement in weekly jobless claims.
PETROLEUM MARKETS
We knew it! Never ceases to amaze, that when records get broken, and the pundits are all talking one direction, the market goes the other way. Even given API posting a 7MM bbl draw last night, participants chose to continue the selling with which they commenced the New Year. All the financial news services were trumpeting a “commodity bust”. One or two days makes a trend anymore, so buying might return as early as today. Another thing we thought was that consumer resistance for gasoline might be at $3.00 instead of $4.00 like in 2008 because of the state of the economy. This seems to be borne out by MasterCard’s survey which showed that gasoline demand in the US fell 12.5% to 8.41MM bpd in the week that ended December 31st from the previous week and API’s measure of a 5.6MM bbl build in their report last night. A two day fall from a new high should prompt long liquidation, and not without good reason.
TECH TALK: Action over the last month is particularly instructive here, especially the last few days of the year and the beginning of this year. From December 8th to December 21 the market has held to a trading range largely defined as 85.00-90.00. On the 21st, prices moved above the 10 and 40-day moving averages, activating a buy signal. Momentum only achieved a high of 92.00 for the rest of the month, creating an overbought situation. If the market now falls below the 40-day, it means not only that the overbought condition has been worked off but that a sell signal is active that may threaten the 200-day, at 83.27, quickly.
NATURAL GAS
Despite the rest of the world talking about a commodity bust, gas prices keep chugging along higher, posting a five month high yesterday. Certainly the weather is a major influence as forecasters are talking about another winter storm potentially reaching the East coast this weekend. Additionally, EIA will probably report a 129 bcf pull from stocks tomorrow, almost double the five-year average for this period of only 79 bcf. The conundrum though is if the focus is on the fundamentals, why is the most important one of all, the 3.232 Tcf currently stored being ignored? Producers must see this, which is why the Baker Hughes rig count has declined to the lowest level in almost a year, and prices have declined over 20% in that period, as well. Perhaps the technicals hold the key.
TECH TALK: Price action during the period depicted in the chart may represent a huge bottoming formation. The only thing lacking is the breakout, which may be occurring now. The chart presents a very bullish picture, but be alert for divergences. The market is trading above the 10 and 40-day moving averages which activates a buy signal, but remains below the 200-day which reflects the larger 14 month trend. What happens with the gap created on Monday is key. Will it become the breakout signal, or make an island top or just a gap that needs to be filled? Watch this closely! With most price action, so far, below today’s pivot of 4.644, a tactical short entry is suggested. If the gap is filled today, but does not settle below further advances are possible. If the mercury starts to rise so that another gap lower is posted, look for support at 3.80 to be tested quickly.