The latest NOAA forecasts that hit the airwaves over the weekend are presenting a noticeably different picture than those issued just last week. The latest temperature forecasts as now suggesting that spring may finally be arriving. Both the six to ten day and eight to fourteen day forecasts are projecting above normal temperatures across most of the US with very warm temperatures projected for the eastern third of the country in the 8 to 14 day forecast.

Based on this round of forecasts the atypical heating related Nat Gas demand that has persisted since the official start of spring will likely come to an abrupt halt if the actual weather turns out to be in sync with the forecasts. The moderating weather should be arriving and settling in sometime later this week suggesting that this week's EIA inventory report could be the final net withdrawal of the season with the possibility of a small withdrawal in next week's report if the warming trend moves in slowly.

The futures market has been under light selling pressure since trading opened on Sunday night. The market is not yet ready to collapse as this week's inventory report will be very bullish when compared to the injection for last year and the five year average for the same week (see below for more details). In addition even with the lower demand shoulder season finally looking like it will get underway, total Nat Gas in inventory is now very manageable and at a normal level for this time of the year. The overhang or surplus in inventory is now gone leaving a lot of room for the injection season to evolve with no capacity issues.

For now I would categorize the Nat Gas market as neutral with a slight bias to the downside. I do not see a major price collapse anytime soon, Rather I am expecting prices to drift and establish a new trading range as the market starts to focus on the upcoming cooling season. Barring a big upside (larger than expected withdrawal) miss in this week's inventory report I am expecting the market to trade in a $3.80 to $4/mmbtu trading range for the remainder of the shoulder season.

This week the EIA will release its inventory on its normal schedule and time... Thursday April 4th at 10:30 AM. This week I am projecting an average withdrawal of 65 BCF from 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 Nat Gas heating related demand. My projection compares to last year's net injection of 42 BCF and the normal five year net injection for the same week of 4 BCF. Bottom line the inventory deficit will widen strongly this week versus last year while the surplus will turn to a small deficit compared to the five year average if the actual numbers are in sync with my projections. This week's net withdrawal will be bullish 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 707 BCF. The deficit versus the five year average for the same week will come in around 3 BCF. This will be a bullish weekly fundamental snapshot if the actual data is in line with my projection. The early industry projections are coming in a range of 45 BCF to about a 100 BCF net withdrawal with the market consensus still forming.

So far this has been an interesting investing/trading year with the major risk asset markets mixed after just about all of them started the year with strong gains. The first quarter market pattern has been uneven and strongly impacted by the cloud of uncertainty still hanging over the global economy. The outcome for the first quarter is shown in the EMI Investment chart below.

Unlike the first quarter of 2012 when Nat Gas was the largest loser on the EMI Investment Chart this year Nat Gas is actually the largest percentage gainer for Q1 of 2013. After a mild start to the winter heating season of 2012/2013 the back end of the winter has been much colder than normal resulting in a strong level of Nat Gas heating related demand and thus an accelerated destocking of the surplus of Nat Gas in inventory. In fact current Nat Gas inventories are significantly below last year and are just about at the same level as the normal five year average for this time of the year.

Rounding out the energy complex RBOB gasoline increased by double digits for the quarter… a positive sign for the refining sector but a negative for the US consumer… although the national average US retail gasoline price is currently almost $0.30/gal below last year at this time. WTI was the only other energy commodity to show a gain for the quarter as both Brent and HO declined across Q1.

The big storyline in the energy pricing area was the significant narrowing of the Brent/WTI spread. The spot spread declined by almost 34 percent or $6.50/bbl over a timeframe when the North Sea has been operating at normal to even above normal levels, geopolitics were not currently impacting the flow of oil and crude oil stocks in the mid-west region of the US have been declining… although they are still above last year and the normal historical level. Crude oil inventories in Cushing, Ok seems to have peaked during the first part of the year and have been slowly declining since then. The destocking pattern is still a slow and shallow pattern and could be reversed at any time if refiners in PADD 2 experience any unscheduled issues going forward.

Equities were the other investment area that showed modest gains for the first quarter of 2013 but all global equity markets did not participate fully in the rally. The EMI Global Equity Index (an index of 10 global bourses) actually declined marginally for the quarter with Brazil, China and Hong Kong leading the EMI Index lower. On the top end of the ladder Japan's bourse has been one of the high flyers of Q1 as the Yen has declined almost 8 percent on the quarter… a very positive benefit for this export driven economy. As shown on the chart the US equity markets performed well over the quarter with the Dow and S&P indices both showing double digit gains for Q1 as well as hitting new all-time highs. The NASDAQ was the laggard in the US as many tech stocks struggled during Q1 led by a struggling performance by Apple.

Overall equity markets have performed rather well in spite of the high level of uncertainty that has plagued many regions of the world. Europe remains in recession, the US is still struggling to solve its budget and debt issues and the main economic high flyers… like China are not growing at the pace that many expected them to expand at. All in all it turned out to be a decent quarter for equities which was mostly a positive for energy prices and the broader commodity complex as rising equity markets tend to be a leading indicator for expanding global economic growth and thus an increase in commodity demand.

Unlike last year at this time when metals and agricultural commodities were the high flyers both of these sectors performed poorly during the first quarter. Metals and agricultural commodities were lower across the board while the US dollar firmed over the quarter adding negative pressure on both of these sectors.

Gold ended the quarter in negative territory after over a decade of consistent gains. The spot gold futures contract declined by 4.83 percent. Silver performed even worse than gold falling by 6.4 percent over the quarter as investors viewed both of these safe haven commodities as not the place to park money with many equity markets in a modest rally so far this year.

Copper was down 7.05 percent as the number one consumer of Copper... China is experiencing a slow growth pattern in its economy. Copper is an industrial metal that is highly dependent on the Chinese economy (to a lesser extent other emerging market economies). China and the rest of the emerging market economies were lackluster in 2013 so far and thus the decline in copper prices.

What a difference a new year makes… more crops and what seems to be a major improvement in the drought stricken farmland areas of the US. The main agricultural commodities declined across the board in Q1 with Wheat the largest loser declining by 11.6 percent. Soybeans and corn declined only marginally in Q1 by 0.99 percent and 0.43 percent, respectively. The grains markets declined strongly at the end of last week on a bearish USDA report that showed higher than expected stockpiles of Corn, Wheat and Soybeans.

The US dollar has been in a modestly strong uptrend throughout most of the first quarter of 2013. The US dollar index increased by 4.13 percent while both the euro and yen declined modestly in Q1. The euro has been in decline due to the ongoing debt issues in the region… Cyprus the latest as well as the simple fact that Europe remains in its second recession in less than five years. The yen has been on the defensive as the Japanese government gets even more aggressive in its quantitative easing program to try and finally jump start an economy that has been lackluster for years.

I am downgrading my view to neutral for Nat Gas as the forecasted weather pattern now appears to be a negative for heating related Nat Gas demand. I do not expect prices to collapse but I view the moderating temperatures to result in the Nat Gas price rally likely topping out at this time as the lower demand shoulder season finally arrives.

I am maintaining my view of the entire complex at neutral but with a cautiously bullish bias as the oil complex appears to have formed a short term technical bottom. HO and RBOB have been trending higher but within the confines of a trading range. They are both currently trading near the upper end of their respective trading ranges. WTI has now breached its range resistance level with Brent hovering very near its range breakout level. The complex is showing signs that the next move could be a move to the upside.

Markets are mostly lower as shown in the following table.

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

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