With the December Nymex Nat Gas contract now in the history books the newly anointed spot or Jan contract has remained under modest selling pressure. The market has been drifting lower overnight and is now trading below the upward channel support level of around $3.84/mmbtu. From a technical perspective the Jan futures contract is now setting up into a $3.84/mmbtu to around $3.60/mmbtu trading range as the recent support area is now a resistance level. This is a somewhat familiar technical area for the Jan contract having traded in this range for most of the first half of November. Unless there is a bullish surprise in today's EIA inventory report or a change to a less bearish short term weather forecast I do not see prices breaking out of the aforementioned trading range to the upside anytime soon. I am now expecting the market to make an attempt at the next support level of $3.60/mmbtu sometime during the first half of December.

The latest NOAA six to ten day and eight to fourteen day forecasts remains biased to the bearish side especially the six to ten day forecast which is projecting above normal temperatures across the majority of the US. The eight to fourteen day forecast is less bearish as most of the parts of the US are expected to experience normal temperatures. If the actual weather turns out to be in sync with the current forecast I see a modest probability of the early December inventory reports switching back to a small injection before resuming their normal winter pattern of net withdrawals. At the moment the short term weather forecasts are offsetting the fact that today's EIA inventory report will very likely show the third net withdrawal of the season.

This week the EIA will release its inventory report on its normal schedule... on November 29st at 10:30 AM. This week I am projecting a withdrawal of 15 BCF from inventory. My projection for this week is shown in the following table and is based on a week that experienced a modest amount of Nat Gas heating related demand. My projection compares to last year's net injection of 2 BCF and the normal five year net withdrawal for the same week of 18 BCF. Bottom line the inventory surplus will narrow modestly again this week versus last year but widen marginally versus the five year average if the actual numbers are in sync with my projections. This week's net withdrawal will be well below the injection level for last year but below the five year average net withdrawal for the same week if the actual outcome is in sync with my forecast.

If the actual EIA data is in line with my projections the year over year surplus will narrow to around 7 BCF. The surplus versus the five year average for the same week will widen to around 171 BCF. This will be a neutral to slightly bullish weekly fundamental snapshot if the actual data is in line with my projection. The early industry projections are coming in a wide range of a 5 BCF injection to a net withdrawal of about 30 BCF with the consensus looking for a draw of about 15 BCF.

After declining on a neutral to slightly bullish weekly EIA oil inventory report (see below for more details) the oil complex has rebounded overnight and into this morning on a bit of optimism that the US politicians will be able to reach a solution on the fiscal cliff. The 30 second news snippets hitting the media airwaves over the last twenty four hours were mostly positive toward the politicians ability to reach an agreement sooner rather than later according to House Speaker John Boehner. The President also told reporters he expects to reach a deal before Christmas. As I have been indicating in the newsletter for months a solution will be reached before the end of the year deadline as neither party is willing to hold out and potentially send the fragile US economy back into its second recession in four years. While the solution is negotiated the financial and commodity markets will be reacting to every 30 second news snippet with volatility likely at above average levels until a final solution is agreed to.

Oil prices have moved from being primarily driven by the evolving geopolitical situation in the Middle East...which is slightly more stable than it was a few weeks ago... to mostly being impacted by the state of the global economy as well as oil fundamentals. In a published Bloomberg survey of investors about two- thirds of the 862 surveyed described the global economy as either stable or improving compared to just half back in September. If the investor sentiment is actually improving we could be entering the early stages of a stable to even upward movement in financial markets which in turn would be bullish for the oil market as well as the broader commodity complex. Certainly the macroeconomic data from around the globe over the next several months will be a lot more telling than a survey but for the first time in a while at least the investor community is looking at the global economy with a more positive viewpoint.

I am keeping my Nat Gas price view at neutral as the fundamentals and technicals are once again suggesting that the market may have topped out for the short term. I anticipate that the market will remain in a trading range until it becomes clearer as to how the heating season will evolve. As I have been discussing for weeks the direction of Nat Gas prices are primarily dependent on the actual and forecasted weather pattern now that we are in the early stages of the winter heating season.

I am keeping my view at neutral with a bias to the neutral side for today primarily due to the evolving geopolitical situation in the Middle East and the Greek deal on financial aid. At the moment there is still no shortage of oil anyplace in the world and the part of the risk premium in the price of oil in anticipation of a spreading of the fighting taking place between Israel and Hamas as well as the civil war in Syria is still in place.

The geopolitical risk has been the main bullish price driver for oil as the current fundamentals as well as the slowing of the global economy are both biased to the bearish side for oil. In the short term the price of oil will move based on the evolution of the situation in the Middle East and the markets view as to the state of the global economy. This is still an event driven market for oil at the moment.

Markets are mixed heading into the US trading session as shown in the following table.

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

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