Nat Gas futures are starting the last trading day of the week where it left off on Thursday… struggling to go higher. The spot futures contract actually breached a second support level ($4/mmbtu) in overnight trading but has subsequently moved slightly above the support area as of this writing. Yesterday's EIA inventory report was simply bearish and very disappointing to the growing number of bulls that have entered the market over the last few months. The latest winter surge in Nat Gas demand may finally be coming to an end as the colder than normal spring temperatures may be stating to move more toward real spring like weather and thus a period of lower Nat Gas demand.

Market participants are now gauging how long it may be before the gap between current inventory levels and the more normal five year average will be closed. Right now total stocks are still about 118 BCF below the five year average of 6.2 percent. With supply remaining at strong levels and with demand looking like we will be entering a period of slowing (until the peak summer cooling season sets in) it seems to only be a matter of time before what should be normal to above normal injections will bring total stock levels more in line with the historical data.

The latest six to ten day and eight to fourteen day forecasts are also changing toward being a tad less supportive than those that were released for most of the first part of this week. The area of below normal temperatures over the US mid-west is starting to get smaller with the eastern part of the country now expecting normal spring like temperatures during the May 10th to 16th timeframe. Spring may finally be arriving and any remaining Nat Gas heating related demand is likely to quickly dissipate. In addition with only small pockets of above normal temperatures in the Pacific Northwest there is not likely to be an early surge in Nat Gas related cooling demand… although the summer cooling season is expected to be about 10 to 15% warmer than normal. We will have to wait and see how the summer cooling season shapes up as an early start to it is not in the cards like what was experienced last year.

Average monthly pipeline exports of natural gas from the United States into Mexico from border points in Texas rose by 0.40 billion cubic feet per day (Bcf/d) between January 2012 and January 2013, according to U.S. Energy Information Administration (EIA) data. This accounted for over 80 percent of the 0.49 Bcf/d increase in average daily pipeline exports to Mexico that occurred over this period, with the remainder coming from California and Arizona.

Total demand decreased significantly for the report week. According to EIA/BENTEK Energy Services LLC (Bentek) estimates, overall natural gas consumption in the United States decreased by 8.8 percent. As temperatures increased in most parts of the country, the residential/commercial sector consumed 24.3 percent less gas for the report period. This more than offset a 2.5 percent increase in the amount of natural gas consumed for electricity generation, driven by a 18.7 percent increase in electric sector natural gas use in Texas. Power burn also rose in the Midcontinent region by 22.9 percent and in the Southwest region by 2.7 percent, as well as in the Rockies and the Northeast, but declined by 5.0 percent in the Southeast and 11.9 percent in the Pacific Northwest, in addition to a decline in the Midwest. Industrial consumption decreased by 1.4 percent, while exports to Mexico increased by 11.2 percent.

Total supply for the report week was down slightly. EIA/Bentek estimates that supply was down slightly for the report period. U.S. gross and dry natural gas production both declined by 0.3 percent week-on-week, following last week's 0.8 percent increase. Dry gas production for the week is 2.0 percent above last year's level. Canadian imports were down 5.0 percent: imports in the West are up, while imports in the Midwest are down, and imports in the Northeast near zero. LNG imports, a very small contributor to U.S. supply, decreased by 8.1 percent.

The battle between a weakening fundamental picture for the oil complex against the very aggressive easy monetary policy in the US, Japan, UK , Europe and even India are creating a choppy and volatile short term trading pattern. Yesterday's rally in the oil complex was actually led by WTI even after the EIA reported a surge in crude oil inventories pushing the total level to an eighty two year high. Certainly Thursday's move was all about the massive amount of liquidity that is hitting the market by the aforementioned Central Banks offsetting the slowing oil demand growth scenario… at least for the moment.

The oil complex has been trading in a higher trading range for the last eight sessions after bottoming in mid-April driven by the weak oil demand growth view. However, the market is struggling to get through the upper range resistance area and move on to the next higher level. So far all of the commodities in the oil complex have made at least four attempts to breach their respective resistance levels and all four time they have failed. Once again after yesterday's surprise move to the upside the complex seems poised for yet another test of breaching resistance. I view yesterday's move more as a bit of QE euphoria rather than any structural change in the overall bearish fundamental picture.

From a trading perspective the market is likely to remain in the choppy pattern at least until this morning's (8:30 am EST) US nonfarm payroll data is released and digested (market is expecting about 160,000 new jobs with the unemployment rate remaining steady at 7.6 percent). A better than expected report could turn out to be mildly negative for the oil complex as market participants might interpret the data as an early warning sign that the US Central Bank may begin to develop an exit plan for their massive QE program sooner than originally expected. On the other hand another negative report like last month's underperformance would certainly be supportive as it would suggest that the Fed will continue to print money for the foreseeable future.

There is no hiding from the fact that the global economy is slowing… more quickly in some areas of the world and the main remedy that is being employed is a very easy monetary policy as we have seen over the last several years. Except now it is continuing to spread. Yesterday the ECB finally admitted that the EU economy is going nowhere quick as they lowered short term interest rates by 25 basis points and approaching the US policy of near zero interest rates. This morning the European Commission painted a negative picture for the EU economy in their latest forecast. They said the economy would contract more than originally expected while also pushing unemployment to a new all-time record high. They forecast that GDP would decline by 0.4 percent for 2013 versus the last forecast predicting a 0.3 percent contraction.

Also overnight another emerging market country is concerned about their sluggish growth… India. The Central Bank in India lowered short term interest rates for the third month in a row. The Indian economy is slowing along with its main Asian competitor… China based on the plethora of macroeconomic data that has been released over the last several months. Although the global economy is not anywhere near what it was like at the height of the recession the economy is still slowing and various forms of easy monetary policy are once again taking over the controls. Thus establishing the so called floor in most risk asset markets… including oil prices. The battles continues in the oil complex.

I am maintaining my view at neutral for Nat Gas and moving my bias to 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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