Nat Gas futures remain in a short term upward move with the spot contract now remaining above the key $4/mmbtu for the third day in a row. As I have been discussing in detail in the newsletter I view the current move above the $4/mmbtu to be primarily technically driven as the current fundamentals have not changed and are neutral at best. The spot contract is now in a $4 to $4.16/mmbtu trading range. Whether or not the market is going to be able to remain in this range and even move above it will be very dependent on what is in store with the upcoming summer cooling season (yet to get underway).

For the next several weeks the latest NOAA six to ten day and eight to fourteen day forecasts are still mostly neutral. The forecasts are showing mixed pockets of both above and below normal temperatures but overall it does not appear to suggest that there is going to be a surge in either heating or cooling related Nat Gas demand during the month of May. For now the latest weather forecasts suggest that there will not be a sudden call on Nat Gas for cooling demand and thus it is highly likely that for the rest of the month of May weekly Nat Gas injections should outperform versus the historical data and thus narrow the gap between current inventory levels and the so called normal five year average.

This week the EIA will release its inventory on its normal schedule and time... Thursday May 16th at 10:30 AM. This week I am projecting the fifth injection of the season of 95 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 56 BCF and the normal five year net injection for the same week of 83 BCF. Bottom line the inventory deficit will narrow this week versus last year and the more normal five year average if the actual numbers are in sync with my projections. This week's net injection will be neutral with a slight bias to the bearish side when compared to the historical data.

If the actual EIA data is in line with my projections the year over year deficit will come in at about 698 BCF. The deficit versus the five year average for the same week will narrow to around 87 BCF. The early market consensus is projecting the fifth injection of the season in the range of 85 BCF to 110 BCF with the consensus at 95 BCF.

Oil prices continued their decline for the sixth trading session (basis WTI) in row as the current fundamentals point to lower prices. The market remains focused on projections for lower oil demand growth, robust supply and building inventories. Yesterday total crude oil and refined product inventories built again in the US by 2.6 million barrels (see below for a more detailed discussion on this week's inventory report). Further adding to the concern in the market has been macroeconomic data that continues to suggest that the global economy is faltering. Yesterday GDP data out of Europe showed France now moving into recession with the overall EU recession deepening a tad last quarter.

As has been the case for months the oil complex is being supported by the massive stimulus programs in the developed world. Oil prices would likely be a lot lower if it were not for the support coming from the monetary side of the equation. At the moment the only upward price support for oil is the QE programs in the US, UK, Japan.

Geopolitics are also somewhat quiet with the latest meeting between Iran and the IAEA ending with no movement on resuming inspections in Iran. With this result the sanctions will remain and thus keep a portion of Iranian oil off of the market for the foreseeable future.

As I have been warning the Brent/WTI spread has continued to widen with the spot spread now approaching the next résistance level of around $10.50/bbl. The June spread expires on Friday. With a weekly build in Cushing for the week ending May 10th and with the prospect of maintenance coming in June in the North Sea the market has changed it short term sentiment to a more bullish outlook for the spread in the near term. For the moment the spread looks like it may move further to the upside before resuming its next leg down. Longer term I am still expecting the spread to narrow once the maintenance is over in the North Sea.

Another recipient of the massive stimulus programs has been the global equity markets. The EMI Global equity Index has now recovered all of its earlier week losses and is now showing a small gain for the week. The Index is up by 0.15 percent for the week with the year to date gain widening to 2.5 percent or the highest level since early February. China is now on the cusp of moving into positive territory for the year showing only a 0.8 percent loss for 2013 with Brazil still showing a loss hovering near the double digit level. Japan continues on the top of the leader board with the US Dow holding the second spot. Equities have been supportive for oil prices.

I am maintaining my view at neutral for Nat Gas but upgrading my bias to cautiously bullish as yesterday's price reversal and breaching of the upper range resistance level suggests higher prices could still be in the cards. The fundamentals remain neutral at best as most of the current move is technically driven.

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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