The battle rages in the Nat Gas markets as spring like weather is projected to be on the way which should result in an increase of inventory injections on one hand. On the other side of the battle price support coming from the fact that total Nat Gas inventories are well below last year and modestly below the more normal five year average for the same timeframe. The bearish view won out over the latter part of last week after the weekly inventory report showed a larger than expected injection into inventory. So far this morning the spot futures contract is in a bit of a stalemate as the June Nymex futures spent time in the high $3's and is now (as of this writing) back above the technical and psychological $4/mmbtu level.

This week's inventory report will show a higher injection that last week's level and will come in well above last year's injection and should also top the more normal five year average level for the same week. The total inventory deficit versus last year and the five year average will narrow again this week. The lower demand shoulder season may finally be starting to settle in. If it continues the key data point to watch will be how quickly the gap between current inventory levels and the five year average narrows.

The latest NOAA weather forecasts that were issued over the weekend are less supportive than those that were issued earlier last week. The colder than normal like weather over the mid-west is definitely subsiding and moving more toward spring like conditions. In addition the eight to fourteen day forecast is showing a much larger pocket of normal to above normal temperatures over the eastern half of the US. The forecast through the middle of May is suggesting that there is not likely to be a significant level of Nat Gas heating related demand nor is the summer cooling season likely to get underway over the aforementioned timeframe and have an impact on Nat Gas demand.

For the moment the battled continues as the speculative and investor community have once again increased their net long positions according to the latest CFTC Commitment of Traders report released on Friday suggesting that there may not be a sudden collapse in Nat Gas prices in the short to even medium term. The market seems to be searching for a trading range it would like to settle into for the remainder of the shortened shoulder season. If we stay above the $4/mmbtu level it will be a range of $4 to $4.16/mmbtu. If not the next lower range will be $3.85/mmbtu to $4/mmbtu. Right now the market is not trading with a lot of conviction in either direction.

This week the EIA will release its inventory on its normal schedule and time... Thursday May 9nd at 10:30 AM. This week I am projecting the fourth injection of the season of 75 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 30 BCF and the normal five year net injection for the same week of 69 BCF. Bottom line the inventory deficit will narrow this week versus last year and the more normal five year average if the actual numbers are in sync with my projections. This week's net injection will be neutral with a slight bias to the bearish side when compared to the historical data.

If the actual EIA data is in line with my projections the year over year deficit will come in at about 750 BCF. The deficit versus the five year average for the same week will narrow to around 112 BCF. The early market consensus is projecting the fourth injection of the season in the range of 45 BCF to 85 BCF with the consensus still forming.

Most risk asset markets headed higher on Friday after what appeared to be a mostly positive US nonfarm payroll data point. The US Labor Department revised upward the last several months of data while reporting a net jobs gain of 165,000 of the month of April. Certainly an improvement over March but still short of what is needed on a consistent basis to bring US employment on a path toward so called full employment. The headline unemployment rate decreased but once again it is being driven by a reduction in the participation rate as more unemployed workers drop out of the search for a new job.

I view Friday's market reaction to the jobs data as a bit overdone insofar as oil is concerned. The creation of 165,000 new jobs is not going to materially impact US gasoline demand anytime soon. In fact the spot RBOB gasoline contract actually declined slightly on the week. In my view the oil complex is still far away from a demand surge out of the US based on a compilation of all of the macroeconomic data that has been released over the last several months. In fact when the IEA releases (Tuesday…OPEC report on May 10, IEA on May 14th) its monthly Short Term Energy Outlook Report this week I am expecting them to announce another cut in their oil demand forecast for 2013.

Overnight oil prices are getting a boost after Israel engaged in two airstrikes in Syria over the last three days. This could be the start of a round of geopolitical risk that may be moving back into the oil price… especially if the action by Israel continues. At the moment there is no interruption in the flow of oil but if there is an escalation the market will quickly begin to add a risk premium to the price of oil in anticipation of a possible interruption of supply. For the moment we have to keep the geopolitical risk coming from the region on the radar as it could be an upside price catalyst going forward.

I am maintaining my view at neutral for Nat Gas and keeping my bias at cautiously bearish as today's price reversal and breaching of the lower range support level suggests lower prices may still be in the cards. The fundamentals are less supportive after today's inventory snapshot.

I am maintaining my view of the entire complex at neutral. Global demand growth is still looking like it is turning to the downside. Brent & WTI both breached their range support levels suggesting further downside potential in the short term. Markets are mostly higher as shown in the following table.

Best regards,

Dominick A. Chirichella

Follow my intraday comments on Twitter @dacenergy

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