Nat Gas prices remained firm heading into Thursday,s weekly inventory snapshot. For the second day in a row the spot Nat Gas futures contract has traded and settled above the $4.16/mmbtu support level. At the moment the technicals are suggesting that the market is building momentum for another test of working toward the upper resistance level of around $4.40/mmbtu.
The fundamentals remain supported by the atypical spring like weather forecast that is projecting below normal temperatures over the eastern half of the US. In addition the forecast for above normal temperatures over the western part of the country has compressed a bit over the last several days suggesting that the dominant impact on Nat Gas will likely be atypical heating related demand through the end of April.
As I touched on yesterday the so called lower demand shoulder season may turn out to be a short lived period as we are now almost a month into spring and thus the shoulder season and the weather is nothing like it should be for spring over major portions of the US. This could turn out to be one of those years when winter engulfs spring and the next actual change in weather will be summer which could bring on cooling demand very quickly.
This week the EIA will release its inventory on its normal schedule and time... Thursday April 18th at 10:30 AM. This week I am projecting the first injection of the season of 15 BCF into inventory. My projection for this week is shown in the following table and is based on a week that experienced a modest level of above normal temperatures during the report period. My projection compares to last year's net injection of 20 BCF and the normal five year net injection for the same week of 39 BCF. Bottom line the inventory deficit will widen this week versus last year as well as the deficit compared to the five year average if the actual numbers are in sync with my projections. This week's net injection will be supportive when compared to the historical data.
If the actual EIA data is in line with my projections the year over year deficit will widen to about 809 BCF. The deficit versus the five year average for the same week will come in around 90 BCF. This will be a slightly bullish weekly fundamental snapshot if the actual data is in line with my projection. The market is projecting a range of injections from 15 BCF to as high as 40 BCF with the market consensus forming around the 35 BCF level.
As I warned in yesterday's newsletter the recovery in most risk asset markets has turned out to be a short covering rally in what is looking more and more like a broader based downturn. The oil complex continued to get pummeled with Brent now solidly below the $100/bbl level and the lowest price since the middle of last year. In fact Brent declined more than WTI on Wednesday resulting in the further narrowing of the Brent/WTI spread and now hovering near another key technical support level. The bearishness coming from the European sector and weighing on the Brent market is stronger than the fact that WTI crude oil has now built for the fourth week in a row. The Brent side of the spread is currently the dominant price driver.
The fallout in oil is continuing to being impacted by the growing view that there will be an issue with oil demand going forward. The fundamental data that has been hitting the media airwaves since the first half of last week have all pointed to a slowing of global oil demand growth. In addition the macroeconomic data that has been released since last week is suggesting that the global economy is showing more and more signs of a slowing. Along with the IMF lowering its forecast for global GDP growth all signs both fundamentally and based on economic data suggest oil demand growth is likely to continue in a slowing pattern for the foreseeable future. Simply put the forward oil complex is now facing a shortage of oil demand growth in the midst of a relatively robust supply market. At the moment oil is fundamentally and technically bearish.
I am maintaining my view at neutral for Nat Gas with a neutral bias as the spot Nymex contract is continuing to hover and trade either side of the $4.16/mmbtu level for the last several days.
I am maintaining my view of the entire complex at cautiously bearish bias as inventories are starting to build and moving the complex back into a supply driven mode rather than a demand led market. Brent has now breached its range support level again with WTI and refined products not faring any better. The complex is now suggesting that the next move is likely to be a continuation to the downside. Markets are mixed heading into the Asian trading session as shown in the following table.
Note: I am publishing Thursday morning's newsletter on Wednesday night due to my travel schedule. In addition I will be unable to publish Friday's report as I will in route to Europe.
Dominick A. Chirichella
Follow my intraday comments on Twitter @dacenergy
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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