Nat Gas futures failed to remain above the $4/mmbtu level for three trading session in a row with the high today still far away from this level. Today the April Nymex Nat Gas contract expires and as it appears at the moment the first two months are going to go out in a mild contango. The futures market is strongly higher after yesterday's decline that held above the technical support area of $3.80 to $3.85/mmbtu level. Although the failure to breach and stay above the technical and psychological $4/mmbtu level is sign that the market may be topping the fact that it held support and bounced higher today is also a sign that the current up leg may not yet be over.

This is normally the first week of the injection season based on the five year average data. However, the lower demand shoulder season has been postponed and even though we are officially in spring… winter heating demand is still strong in many parts of the US. In fact yesterday experienced a spring snow across the middle of the US stretching from the west all the way to parts of the east coast. At least for the next several weekly inventory reports there are going to be strong net withdrawals from inventory which is atypical for this time of the year.

The latest NOAA six to ten day and eight to fourteen day forecasts are still both projecting below normal temperatures over major parts of the US… except for the western third of the country and the southwest. Heating related Nat Gas demand will linger through the first week of April… at least. Interestingly last year there was an atypically early start to the summer cooling season which helped to bolster Nat Gas demand after a very low demand warm winter period. The last several months of winter have been just the opposite this year with heating demand remaining above normal.

This week the EIA will release its inventory on its normal schedule and time... Thursday March 28th at 10:30 AM. This week I am projecting an average withdrawal of 70 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 45 BCF and the normal five year net injection for the same week of 6 BCF. Bottom line the inventory deficit will widen strongly this week versus last year while the surplus will narrow 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 617 BCF. The surplus versus the five year average for the same week will come in around 87 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 60 BCF to about a 100 BCF net withdrawal with the market consensus still forming.

The oil complex was able to hold onto gains even as the Cyprus relief rally the sent most risk asset market higher early in the session did not last very long. Equities and many risk asset markets ended Monday's session in negative territory as market participants once again started to be concerned that the conditions of the Cyprus deal could be the new standard for future bailout deals in Europe. The macroeconomic front was mostly quiet yesterday with traders and investors moving their focus slowly away from Cyprus and toward the value drivers that have been in play… especially the state of the global economy.

Today the economic data flow picks up with energy sensitive durable goods orders for the US along with housing data. In Asia overnight market participants were once again starting to expect the Chinese government to tighten the reins on measures to slow down the rising home prices. In addition exports unexpectedly declined from Hong Kong in February casting a negative cloud over most Asian equity markets today.

Oil prices have continued to move higher with the May Brent/WTI spread once again narrowing strongly over the last twenty four hours. This is the seventh week in a row that the spread has continued to narrow with only a few shallow and short lived short covering rallies along the way. The combination of crude oil inventories in Cushing now in the early stages of a destocking pattern and the North Sea production level running at normal to even above normal levels have been enough to result in the spread premium narrowing by about $10/bbl since early February.

The spot or May Brent/WTI spread breached and closed below another key technical support level of $13/bbl yesterday and seems to be heading for the next technical support level of $10.85/bbl or a level not seen since mid-June of 2012… basis the spot continuation chart. Resistance is now yesterday's $13/bbl support with the next level resistance back at the $14/bbl level.

I am maintaining my view at cautiously bullish For Nat Gas as long as the spot contract remains above the $3.82 to $3.86/mmbtu technical support area that will need to hold to keep the current uptrend in play. If this level is breached with settlements below this area there could be a modest retracement in prices. As I have been discussing for weeks the direction of Nat Gas prices are primarily dependent on the actual and forecasted weather pattern and currently those forecasts have continued to be supportive for heating related Nat Gas demand even though spring has arrived.

I am maintaining my view of the entire complex at neutral as the oil complex still appears to be in the process of forming a short term technical bottom. However, WTI, HO and RBOB have all remained in a sideways trading pattern with refined products trading near the lower end of the trading range while Brent has now breached its range support level. The complex may still be in a bottoming pattern but it is now looking like the probability of another down leg is increasing based on the current assessment of the fundamentals, the way the external price drivers are trading as well as the technicals.

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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