Europe, the US and now China all adding to an already negative market sentiment. The European debt crisis continues to loom over all of the markets as any potential solution is still only evolving. Over the last several weeks there have been three government changes in Europe with the latest coming in Spain over the weekend where the conservative party decidedly beat the socialist part as the economy of Spain continues to deteriorate. That said some progress is being made in Europe as both Greece and Italy have new governments installed with parliamentary approval to follow the austerity programs set forth by the EU. However, as of today market participants are still not comfortable enough that Europe has made enough progress to insure that the EU debt issues will be solved anytime soon.

On top of the mess going on in Europe a mess or better put a three ring circus (in my opinion) is evolving in the US around the debt commission who after several months of meeting 12 politicians could not come up with a solution to cutting the exploding US debt. This is a disgraceful performance as the deadline is Wednesday with absolutely no sign that they will come up with a solution before the deadline. To me it is a shame that these politicians can't be fired (ahead of the expiration of their elected term) for an absolutely inept performance on this project. About the only somewhat positive coming from the committee's failure to come up with a plan will result in an automatic $1.2 trillion dollar spending cuts. As usual what was coming from the politicians involved in the committee on the Sunday news talk shows was to blame each side rather that to discuss a solution. It remains unclear to me why we actually elected these people since they are incapable of doing what they have been elected to do. I guess you can surmise I am very negative. Markets are responding with added negativity on top of the ongoing negativity coming from Europe.

Further adding to the negativity to start the week were comments coming from one of China's senior leaders who painted a rather negative picture for the global economy going forward. He suggested the world will likely experience a prolonged global recession caused by the financial uncertainties. So once again we are starting a new trading week with nothing other than negative news hitting the media airwaves which is resulting in across the board selling of most risk asset markets around the world.

Much as this week is starting just like last week which ended on a totally negative note as shown in the EMI Weekly Price Board table below. As the situation in Europe unfolded by the time the end of the week arrived most all risk asset markets were lower on the week. Last week was all about Greece & Italy as discussed above which continued over the weekend with the Spanish elections. The action and volatility last week was in all of the oil and commodity markets as well as the global equity markets. Last week was all about market players acting around the cloud of uncertainty that continues to engulf all risk asset markets. Equity bourses were lower as uncertainty started to increase by the end of the week. Precious metals decreased modestly even as the US dollar held its own on the week.
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Over the last week the oil complex was lower across the board with RBOB gasoline the biggest loser in the complex. The expiring Dec WTI contract decreased about 1.51% or $1.49/bbl. The Jan Brent contract ended the week with a loss of 4.76% or $5.37/bbl. The Jan Brent/WTI spread narrowed strongly early in the week on the announcement by Enbridge to reverse the Seaway pipeline only to recovery about half of the earlier losses by the end of the week.

On the distillate fuel front the Nymex HO contract decreased even as distillate fuel inventories decreased more than the expectation while US distillate fuel exports continued to increase. The spot Nymex HO contract decreased by 5.13% or $0.1640/gal. Gasoline prices decreased on the week as gasoline stocks increased modestly. The spot Nymex gasoline price decreased by 6.4% or $0.1694/gal this past week.

Not much has changed in the Nat Gas markets except for yet another bearish weekly inventory report. The short term weather forecasts are still calling for the higher population eastern half of the US to experience above normal temperatures for the next several weeks which should result in prolonging the injection season this year. In addition industrial demand remains flat to sluggish at best as the US economy only slowly evolves. Until the winter heating season finally takes hold demand for Nat Gas is going to continue to underperform versus supply. Many market participants are continue to try to pick the seasonal bottom and that action is likely what has been preventing Nat Gas from completely falling out of bed. Nat Gas decreased strongly as the shoulder seasons continues to linger leaving overall demand sluggish at best. On the week Nat Gas futures declined by 7.84% or $0.282/mmbtu

On the financial front equity markets around the world ended the week lower and near the lows made for the week. Fear of contagion coming from the southern EU member countries... is still a huge concern in the financial markets... which ramped up as the week progressed. Global equity values decreased as shown in the EMI Global Equity Index table below.

The EMI Index lost 3.4% on the week moving the Index back toward the bear market threshold level of 20%. The EMI Index widened its year to date loss to 15.6% with the US Dow still showing a gain for 2011. The US Dow is still in the top spot of all of the ten bourses in the Index with eight of the other nine bourses still showing double digit losses for the year. In fact the Paris equity market is now showing a year to date loss over the 20% bear market threshold and the largest loss of all of the bourses in the EMI Index. Last week the global equity markets were a strong negative for oil prices as well as the broader commodity complex.
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The US Dollar Index appreciated in value on the week as confidence in the euro started to crumble once again. By the end of the week cash was moving out of risk asset markets and into the safe haven of the US dollar. The currency markets are still in the midst of a major realignment as I have been warning for months. Cash flowed out of gold (and the rest of the precious metals complex) which decreased by 2.89% on the week.

Even with WTI still trading above the key technical support level of the mid- $94's/bbl and along with the changing fundamentals I am downgrading my view and bias to neutral as the cloud of uncertainty remains in Europe and is now growing around the lack of a US deficit cutting deal. WTI & Brent are once again back to being in sync with the direction of the US dollar and euro and moving tick for tick with those markets at the moment.
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I am still bearish Nat Gas and unless some real winter heating demand begins to take hold prices could fall further in the short term. Right now I would categorize the current market action as a market with a downside bias. I am keeping my view and bias at bearish as I watch how price activity plays out over the next several trading session.

So much for what was initially perceived as a bullish event in Nat Gas...the weekly injection level coming in about 7 BCF below the expectations. That lasted all of a few hours with futures prices trading below the pre-inventory price level from Thursday throughout most all of Friday's trading session. Once market participants had time to digest the data the most glaring conclusion was even though the injection level came in at the lower end of the expectation range...a new all time record amount of Nat Gas is currently in inventory. The level is above last year's all time record high by 15 BCF and 224 BCF above the more normal five year average. With most participants expecting injections to continue for possibly two or three more weeks the all time record high is yet to be determined.

Due to the Thanksgiving holiday in the US next week the EIA will be releasing the injection report earlier than normal... on Wednesday at noon. So far the early market polls are in the range of a 20 to 37 BCF injection rate...not much different than last week's projections. Some of the weather and industrial consumption based models put the number around 23 BCF. All of the projections are based on fact that this past week has seen mostly above normal temperatures for this time of the year over a major portion of the US. The latest NOAA temperature forecasts are calling for more of the same at least through the end of November and into early December which is likely to result in additional injections. My early view is for an injection of around 21 BCF ...but I will fine tune it for Monday's newsletter.

So yes I remain bearish and will remain bearish until the market signals that it is turning around. I still think there is a potential for futures to drop to the next support level of around $3.25/mmbtu and barring a complete collapse in Europe (which would send NG prices into the $2's) I am expecting the market to start to enter into a accumulation pattern as the market awaits the start of real winter weather.

Currently as a new day of trading gets underway in the US markets are lower.

Best regards,
Dominick A. Chirichella
dchirichella@mailaec.com
Follow my intraday comments on Twitter @dacenergy.