For the third trading session in a row the spot Nymex Nat Gas contract failed to breach the $4.40/mmbtu resistance level after trading up to this level each day. In addition not only did the market fail to move through the $4.40/mmbtu level when it did fail it reversed and turned lower for the day. The market has been drifting lower in overnight trading so far suggesting that the market may now be setting up for a test of the lower range support level of $4.16/mmbtu.
Even though the CFTC reported an increase in speculative longs last week we may be seeing some of the weak longs starting to exit the market after yesterday's technical failure. That all said the market is still trading within the $4.16 to $4.40 trading range or the highest trading range that has been in play in well over a year. Whether or not the market will be able to remain in this trading range is likely dependent on how the short term fundamentals evolve over the coming days.
The latest NOAA six to ten day and eight to fourteen day temperature forecasts have changed compared to those released over the weekend. The latest forecasts are now showing a much smaller area of above normal temperatures with a major portion of the US now expecting normal temperatures for the period April 27th to May 6th. Even with the change in the forecast heating related Nat Gas demand looks like it may finally be over (during the aforementioned period) with strong cooling demand still not likely just yet. The more spring like forecast does not appear to be hot enough to result in any surge in cooling demand through early May. As such injections will likely come in around the more normal five year average during the aforementioned timeframe.
This week the EIA will release its inventory on its normal schedule and time... Thursday April 25th at 10:30 AM. This week I am projecting the second injection of the season of 40 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 44 BCF and the normal five year net injection for the same week of 50 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 797 BCF. The deficit versus the five year average for the same week will come in around 84 BCF. The early market consensus is projecting the second injection of the season in the range of 20 BCF to 50 BCF.
The technical bottoming pattern that had started to form in the oil complex over the last few trading sessions may run into some difficulty after the latest release of the flash PMI manufacturing data out of China overnight. China's manufacturing-activity growth has slowed this month, according to HSBC data released Tuesday. The flash version of HSBC's manufacturing Purchasing Managers' Index fell to a two-month low of 50.5 from March's final reading of 51.6, and well below a market consensus forecast of 51.5. New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak which should not be a surprise as the economies of its two largest customers… Europe & the US remain sluggish.
The oil complex gained ground across the board on Monday but since the China PMI data has hit the media airwaves during Asian trading hours a negative tone is once again emerging over the complex. Over the last two weeks most of the fundamentals forecasts as well as the majority of the macroeconomic data all have been pointing to a slowing of the global economy and thus a slowing of global oil demand growth. The weakness in the oil complex continues to come from a growing view that global oil demand may turn out to be lower than what the market was expecting earlier in the year. With supply still relatively robust any further weakening of demand is going to result in an imbalance with inventories likely to build and keep a cap on oil prices.
In addition to the negative sentiment coming from the disappointing PMI data out of China the Xinhua News Agency reported that China's commercial stockpiles of crude oil rise by 22 percent at the end of March versus February. This is yet another indication that the consumption in the main oil demand growth area of the world may be showing signs of slowing as much of the data has been suggesting over the last several weeks.
I am maintaining my view at neutral for Nat Gas and adjusting my bias back to neutral even though the spot Nymex contract is continuing to trade above the $4.16/mmbtu level. The market failed for the third day in a row to breach the $4.40/mmbtu resistance and then turned to the downside since failing yesterday. That is a bearish signal and one that suggests that the market may now test the lower $4.16/mmbtu support level.
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 European trading session as shown in the following table.
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.
Copyright CME Group All rights reserved.