Paul Ebeling’s Crude Oil and Gold Trading Report

Crude Oil remains firm during the European session last Friday. Apart from improvement in broad market sentiment, US President Barrack Obama’s suspension of deepwater drilling and NOAA’s forecast for an intense hurricane season probably helped buoy prices. Currently trading at 75.5, the front-month contract for WTI Crude Oil has risen another +1.27% from Thursday’s close.

The White House announced to suspend drilling of 33 deepwater exploratory wells in the Gulf of Mexico for 6 months. According to Wood Mackenzie, tighter drilling regulations could lower oil production from the deep waters of the Gulf by as much as 19% in Y’s 2015 and 2016 and threaten the high-cost development of 7 of 13 fields. The threatened fields are estimated to hold 1.8B barrels of oil equivalent and should contribute as much as US$7.6B to government revenue. Others warned that the rules impede exploratory drilling, delay the discovery of new fields and shorten the oil reserves life in the US.

The National Oceanic and Atmospheric Administration (NOAA) said that the hurricane season (June 1 to November 30) in the Atlantic in Y 2010 has an 85% probability of being above normal, with a 70% probability of 14 to 23 named storms.

These developments are going to tighten the oil market in the near-term and the long-term.

The Overall Technical Outlook for this Week

Crude Oil’s rebound extended to as high as 75.72 last week, but there is no change in the POV that the rebound is a correction in the larger decline. While some more rise might be seen, upside should be limited by 61.8% retracement of 87.15 to 64.23 at 78.39 and bring al resumption to the downside. A move below 71.23, the minor support, will augur that rebound from 64.23 is finished, and will flip intra-day bias back to the Southside for retesting this low first.

The Big Picture: the prior break of 68.59/69.50, the support zone, in my view says that medium term rebound from 33.2 has completed at 87.15, just ahead of 50% retracement of 147.27 to 33.2 at 90.24.

And a further decline should be seen to 50% retracement of 33.2 to 87.15 at 60.18 at least. Also, as rebound from 33.2 is viewed as as a correction to the whole correction that started in Y 2008 at 147.27, I now anticipate a break of 33.2 low in the longer term.

On the Upside: break of resistance at the 78 level is needed to say that fall from 87.15 is completed. Otherwise, I am staying Bearish.

In the Long Term: this current development suggests that rebound from 33.2 has finished at 87.15, inside 76.77/90.24 fibo resistance zone as expected.

My POV is that the fall from 87.15 would develop into the 3rd falling leg of the whole correction from 147.27 and so I anticipate an eventual break of 33.2 low in the long term as such correction extends. Stay tuned…

Gold

Gold has moved steadily North after finding support at 1166 on May 21. Settling as 1212.2, the benchmark Comex contract recovered +3.07% of the -4.21% decline in the prior week.

In May, Gold futures record an all time-high at 1249.7 and gained +2.67%.

Demand for Gold moderated last week as market panic stabilized and investors began to seek riskier assets. Although concerns over sovereign crisis in the Eurozone eased temporarily, its future developments and impact on global economy are still uncertain. Current sentiment is fragile and any bad news can cause selloff in the financial market. Therefore, investment demand for the Yellow metal as a safe haven should remain resilient in coming months. Together with political tension on the Korean peninsula, risk is to the upside for Gold.

OECD’s optimism on global economic outlook did not only boost energies but also lifted silver and PGM prices.

The Overall Technical Outlook for this Week

Comex Gold (GC)
Gold extended further to as high as 1218.5 last week before turning sideway. Further rise remains in favor as long as 1197.3 minor support holds and Gold may now target a retest on 1249.7 high.

On the Downside: a break below 1197.3 will indicate that recovery has completed and will flip intra-day bias back to the downside for 1166 support and below.

The Big Picture: though the fall from 1249.7 is deep, Gold is still holding on to 1170.7 cluster support as well as 55 days EMA (now at 1170.2). So, there is no change in the Bullish POV yet, and the long term up trend is still in favor to continue after completing the current pull back. A break of 1249.7 will target 100% projection of 931.3 to 1227.5 from 1044.5 at 1340 next.

Note: sustained trading below 55 EMA will opens up some Bearish possibilities. The least Bearish case is that fall from 1249.7 is the 3rd leg of the 3 wave consolidation from 1227.5, and would target a retest of 1044.5 support next.

The Long Term Picture; the rise from 681 is treated as resumption of the long term up trend from the Y 1999 low of 253 after interim consolidation from 1033.9 has completed in form of an expanding triangle. Next long term target is 100% projection of 253 to 1033.9 from 681 at 1462 level.

I will hold the Bullish POV as long as 1044.5 key support holds. —Stay tuned…

THE HOT LIST

Hurricane Earl Hot List BUGS, FUEL, BCON, GV, Cat Bonds