The Fed is expected to expand its balance sheet this week when it meets, in an effort to mute fears of the fiscal cliff and distrust in Washington. The Fed action is to balance the $600 billion tax increase and spending cuts with more liquidity. The latest week in Washington have brought virtually no progress in the talks.
Brent and energy products received a boost overnight on better than expected Chinese data. The report showed that China oil demand topped 10 mm b/d for the first time. It grew at its fastest rate in two years. The factory output and retail sales helped give a rosy outlook to energy markets.
OPEC will have its year end meeting Dec 12th. Energy markets used to freeze up a week before such a meeting. Now it has become nearly irrelevant. Fiscal policy more determines the price of oil than OPEC.
However, the surprise Europe news is that Italian Prime Minister Mario Monti will resign, as he has lost the support of Berlusconi’s political party. This brings the notion of new elections, possibly by February. Italy was considered a stable nation. This event rends the fabric of the union. Moreover, Germany may be headed toward a recession as well. This is the juggernaut of Europe. It brings to mind Paul Simon’s song, “Slip Slidin’ Away.”
CRUDE: Hi: 86.49; Low: 85.90
Jan appears to be in a bear market consolidation pattern this morning. Jan may work its way back to 86.90. If it breaks that level a pop to the 87.25 to 87.30 may be seen. The upside pivot to that resistance is 87.50. Jan is hanging on to trend support on the daily continuation chart at 85.90. The market begins to show weakness with a break of 85.65. It will pick momentum below 85.00, but it will accelerate in a one way dump with a break of 84.00. We are a seller of the rally at 87.25 with a protective stop above 87.60.
BRENT: Hi: 108.15; Low: 107.14
Although our model cannot rule out a slightly higher leg to this recovering bear market retracement, it is likely to find resistance at 108.40 to 108.60. The minor pside pivot is 108.75. The key upside pivot to the intraday chart is 109.30. In breaking that line Jan will be suggesting a more robust recovery. Nevertheless, we are in a sell the rally mode. This will ideally be at 108.50, with a protective stop above 108.75. The key downside pivot to the short-term chart is 106.00. The key downside pivot to the intermediate term chart is 104.75.
RBOB: Hi: 2.6298; Low: 2.6064
Slumping demand, potential slowdown or recession due to the fiscal cliff and the return to production on many refineries has kept pressure on this market. We feel this is likely to continue following a bounce for Jan. Jan is seen with minor resistance at the 2.63 to 2.6350 area. The minor upside pivot is 2.64. The key upside pivot to the intraday chart is 2.66. We remain a seller of the rally. This will ideally be at 2.6350 with a protective stop above 2.64. The minor downside pivot is 2.5930. The key downside pivot is 2.5375.
DIST: Hi: 2.9330; Low: 2.9127
The lack of early cold in the Northeast has kept pressure on this market and probably will continue to do so. There is likely to be another leg to the downside before this pattern nears its climax. We are a seller of the rally. This will be at the 2.9500 to 2.9950 area. The upside pivot protection is for a stop above 2.9620. The minor downside pivot is 2.91. The key downside pivot is 2.87.
NAT: Hi: 3.520; Low: 3.477
It is likely that with the marginal low to the 3.48 area that Jan completed a leg to the downside. There is likely to be another move lower to follow a brief consolidation. There will be minor resistance at3.55 to 3.56. The minor upside pivot is 3.585. The key upside pivot to the intraday chart is 3.75. Our model suggests that Jan will slip to channel support at 3.43 to 3.42. The key support and downside pivot is 3.35. We view a market decline to the 3.07 area as a potential and if seen this week an opportunity to get long for a rebound if not something more significant. We will be looking to sell the minor rally at the 32.54 level with a protective stop above 3.565.
GASOIL: Unfortunately our gasoil data feed is done this morning. We apologize for the inconvenience.