Yesterday afternoon's NOAA temperature forecasts were consistent with Monday's forecast and slightly less bearish than those issued over the weekend. The latest six to ten day and eight to fourteen day forecasts are still overall bearish but less so. The shorter or six to ten day is still projecting above normal temperatures over the vast majority of the US with the exception of Florida with the southwestern part of the country expecting strongly above normal temperatures. This period is simply bearish for Nat Gas. The eight to fourteen day forecast varies a bit more versus the weekend forecasts as it is now calling for the above normal temperatures over the western half of the US and the upper north east while the rest of the country is expecting normal to below normal (Florida only) temperatures... a less bearish forecast but certainly not overly bullish either.
The Nat Gas market has been holding up surprisingly well based on the bearish short term weather forecasts. In fact the soon to be Jan spot month Nat Gas contract (Dec expires today) held the $3.84/mmbtu support level and for the moment remains in the upward technical channel shown in yesterday's newsletter. The combination of a larger than normal amount of nuclear power generating outages coupled by what should be the third net withdrawal from inventory this week has been enough to slow the selling and keep some of the longer term bulls in the market. In addition the short term weather forecasts have changed often over the last month or so and as such many market participants are in a wait and let's see how the weather turns out mode and have not been very aggressive simply on the forecasts.
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 still forming.
Now that a deal has been reached to provide the next batch of financial aid to Greece the market has turned its attention to the US fiscal cliff negotiations. Yesterday afternoon the financial markets were hit with a round of selling on talk that the politicians in Washington are still struggling to come up with a deal acceptable to both sides. The market is now in the 30 second news snippet mode hitting the media airwaves on comments from all sides of the negotiations. In fact there have been no negotiations this week (so far) with the President and Congress seemingly approaching the situation as if the campaign for re-election was still going on.
In my view it is time for the President and Congress to sit in a room and iron out a deal and not leave the room until it is done. This process has been going on way too long and has been creating uncertainty at every level of the US economy. That said I am still of the view that a deal will be done before the end of the year deadline. Unfortunately for all market participants the process will not be smooth and games will be played and aired out in the media thus increasing the volatility of all markets over the next several weeks. Obviously the oil complex will be impacted in both directions by any and all of the 30 second news snippets hitting the media airwaves.
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 mostly lower as shown in the following table.
Dominick A. Chirichella
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