The spot Nat Gas futures contract started Sunday's trading session around the $4.40/mmbtu technical resistance level only to fail to solidly breach it (so far) for the third trading session in a row. Much as the market did when it was hovering around the then resistance area (now support) at the $4.16/mmbtu level. It took about five attempts spread out over the course of a two week period before the market breached and remained above the $4.16/mmbtu level. Today's failure to get through the $4.40/mmbtu level and move into a declining pattern for the session is somewhat bearish but trading is normally light overnight with a more representative picture coming when the US market open for trading later today.
The fundamentals are supportive with inventories well below last year at this time as well as being below the more normal five year average as the injection season just gets underway. However, heating demand is finally ending. This week's inventory report will likely show the second injection of the season that has started at least two weeks later than normal. Depending on how soon the summer cooling season takes hold as well as how strong Nat Gas cooling related demand turns out to be Nat Gas stocks are not likely to end the injection season anywhere near the record high levels experienced over the last several years.
According to the latest EIA Weekly Nat Gas report estimates from Bentek, average natural gas consumption for the nation rose this report week by 1.6 percent over last week's daily average. Natural gas consumption increased in the residential/commercial and power sectors by 0.8 and 4.5 percent, respectively, for the report week. Natural gas consumption in the industrial sector decreased modestly by 0.1 percent.
Bentek estimates that the average daily natural gas supply for this report week increased by 0.5 percent over the previous week's daily average. Dry natural gas imports from Canada increased by 10 percent from the previous week and offset the decrease in U.S. dry natural gas production. Average U.S. dry natural gas production decreased by 0.2 percent from the previous week to 64.5 Bcf per day.
The latest NOAA six to ten day and eight to fourteen day temperature forecasts are now finally projecting a full start to spring like weather. Most of the country is now expecting mostly above normal temperatures for the period April 27th to May 5th. Heating related Nat Gas demand looks like it may finally be over (during the aforementioned period) with strong cooling demand still not likely just yet. The warmer than normal forecast does not appear to be hot enough to result in any surge in cooling demand through early May. As such injections will likely come in around the more normal five year average during the aforementioned timeframe.
This week the EIA will release its inventory on its normal schedule and time... Thursday April 25th at 10:30 AM. This week I am projecting the second injection of the season of 40 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 44 BCF and the normal five year net injection for the same week of 50 BCF. Bottom line the inventory deficit will widen this week versus last year as well as the deficit compared to the five year average if the actual numbers are in sync with my projections. This week's net injection will be supportive 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 797 BCF. The deficit versus the five year average for the same week will come in around 84 BCF. The early market consensus is projecting the second injection of the season in the range of 25 BCF to 50 BCF.
Oil and most risk asset markets struggled last week as the markets were mostly driven by a risk off trading pattern. As discussed in more detail below most of the risk asset markets monitored in the newsletter were lower for the week. Oil has been under pressure from all three major fronts… fundamentals, technicals and global economic outlook. On the fundamental front the markets have been hit with mostly bearish snapshots for the last two weeks.
Two weeks ago the IEA, EIA and OPEC all lowered their projections for global oil demand growth as both the developed and emerging market world countries all are experiencing a slowdown in their respective economies. In addition the weekly oil inventory reports for the last two weeks were both mostly bearish and reported a build in inventories… especially on the crude oil side.
On the technical side of the equation all of the main commodities in the oil complex have breached and solidly broken below key technical support areas over the last week or so. Although all of the commodities in the oil complex have been trending lower over the last few trading sessions the early stages of a technical bottoming pattern appears to be forming once again. I would caution at the moment as during the first week of April the oil complex was also in the early stages of a bottoming pattern only to fail and experience another strong leg to the downside. We will have to watch how this pattern evolves over the next week to see if the bottoming momentum holds or a new down leg begins once the short covering that began on Friday is over.
The global economy is slowing by most measures. The IMF updated their forecast for 2013 during the week and downgraded just about all of the countries in their forecast. They lowered global GDP for 2013 by 0.2% and even lowered their GDP projection for the main global economic and oil demand growth engine of the world… China. In addition most of the macroeconomic data released last week also supported the view that the global economy is starting to slow. As GDP is highly correlated to oil consumption a slowing of the global economy suggests that global oil demand growth is also likely to slow as 2013 evolves.
I am maintaining my view at neutral for Nat Gas with a bias to the upside as the spot Nymex contract has been holding above the $4.16/mmbtu level for the last several days.
I am maintaining my view of the entire complex at cautiously bearish bias as inventories are starting to build and moving the complex back into a supply driven mode rather than a demand led market. Brent has now breached its range support level again with WTI and refined products not faring any better. The complex is now suggesting that the next move is likely to be a continuation to the downside.
Markets are mixed heading into the European trading session as shown in the following table.
Best regards, Dominick A. Chirichella
Follow my intraday comments on Twitter @dacenergy
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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