CNBC Guest Blog

Published: Wednesday, 11 Nov 2009 | 10:32 AM ET

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Stephen Schork
Editor of
"The Schork Report"

Yesterday was a bad day for anyone long the December natural gas contract, which closed down 4.3% at 4.467, the lowest close for the December ’09 contract ever (i.e. since 2003). The bulls didn’t stand a chance as prices dropped past The Schork Report’s 4.543 inflection point to crater at 4.436, just 2.1 cents above our 4.415 intra-day.

As far as today goes on the NYMEX, offers through yesterday’s 4.436 low print alerts to follow through momentum towards our 4.343 inflection-point and the September 04th (pre-winter rally) 4.340 low print. Below here we will look for offers towards our 4.219 intra-day. On the other hand, a rebound through yesterday’s 4.551 pivot-high clears a path towards our 4.591 inflection point. We will look for further strength above here towards our 4.715 intra-day.

Key takeaways from yesterday’s EIA Short Term Energy Outlook (STEO):

1. The forecast price of West Texas Intermediate (WTI) crude oil was raised by $7 per barrel compared with the last Outlook, to average about $77 per barrel this winter (October-March). The forecast for monthly average WTI prices rises to about $81 per barrel by December 2010, assuming U.S. and world economic conditions continue to improve, particularly in Asia, where current growth has been stronger than expected. EIA’s forecast assumes U.S. real gross domestic product (GDP) grows by 1.9 percent in 2010 and world oil-consumption-weighted real GDP grows by 2.6 percent.
2. EIA projects the monthly average regular-grade gasoline retail price to rise from $2.55 per gallon in October to $2.70 per gallon this month. Generally higher crude oil prices through the forecast period contribute to an increase in the annual average gasoline retail price from $2.36 per gallon in 2009 to $2.81 in 2010, with prices near $3.00 per gallon during next year’s driving season. Projected annual average diesel fuel retail prices are $2.48 and $2.94 per gallon, respectively, in 2009 and 2010. Higher forecast crude oil prices also raise the projected average household expenditures on heating oil this winter to $1,940 in this forecast, compared with $1,864 last winter.

Crude oil prices gave up a tiny bit of Monday’s 2.6% gain yesterday, falling 0.4% or 38 cents to close at 79.05. The contract started the day moving higher, crossing our 79.84 alert but stalling at 80.51, well below our 81.14 inflection point. Prices reversed shortly after to bottom out at 78, safely above our 78.55 pivot low. Since prices didn’t close above the 79.84 point mentioned yesterday, The Schork Report maintains our bearish daily bias.

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Stephen Schork is the Editor of, "The Schork Report" and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.

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