The horrific bombing at the finish line of the Boston Marathon sent a wakeup call that the US is far from terrorism free. The threat to the American public is just as prevalent as it was back on 9/11. As of this writing there is no indication of who may have performed this horrible and cowardly act nor has any group taken responsibility. My prayers are with the victims and their families.
Nat Gas futures started Monday's session mostly ignoring the start of the selling firestorm that hit just about every risk asset market. However, as the session progressed the selling spread even to a mostly de-linked market like Nat Gas. When the session ended Nat Gas futures declined by $0.085/mmbtu after hitting a 21 month high of near $4.30/mmbtu or just $0.10/mmbtu below the range resistance level. Not only did the market fail to reach and breach the range resistance level it reversed, declined and breached the $4.16/mmbtu support level.
The market is now back to the range that was in play early last week with $4.16/mmbtu now the new resistance level with around the $4/mmbtu as the new support level. I have changed my upside bias as yesterday's selling resulted in a relatively strong technical reversal which suggests that the market is likely to remain within the confines of the new trading range… at best or even possibly work its way for a test of the range lower support level.
The selling momentum that eventually hit the Nat Gas market was strong enough to offset a somewhat supportive fundamental picture. The latest NOAA six to ten day and eight to fourteen day forecasts are still projecting half of the US (eastern half) is expecting below normal temperatures through the end of April which is likely to result in some level of Nat Gas heating related demand. In addition the western half of the US is expecting above normal temperatures that could potentially result in some light Nat Gas related cooling demand for that region of the US.
The temperature forecasts suggest that the weekly inventory reports are likely to underperform versus history during the next several weeks. This week will show a net injection… which is normal for this time of the year. However, with the latest temperature projections it is possible that there could be another one or two withdrawals or at best a lower than normal injection level for the forecast period. This week the EIA will release its inventory on its normal schedule and time... Thursday April 18th at 10:30 AM.
This week I am projecting the first injection of the season of 15 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 20 BCF and the normal five year net injection for the same week of 39 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 809 BCF. The deficit versus the five year average for the same week will come in around 90 BCF. This will be a slightly bullish weekly fundamental snapshot if the actual data is in line with my projection. The market is projecting a range of injections from 10 BCF to as high as 60 BCF with the market consensus forming around the 35 BCF level.
Did I say that China matters yet? When the main economic and oil demand growth engine in the world reports that its economy is slowing down the world quickly pays attention to that news as we saw in Monday's trading activity. There was simply a massive sell-off in most risk asset markets or what some like to call a risk off trading day. Commodities, with gold leading the way was sold strongly by the market in some cases looking like some of the panic selling we saw at the height of the financial crisis back in 2008. WTI solidly breached the $90/bbl level with the spot June Brent contract within shouting distance of testing the psychological $100/bbl level. The spot Brent contract has not closed below $100/bbl since mid-July of 2012. Of interest it did trade below the $100/bbl on an intraday basis on Monday.
Monday's selling was broad based across many asset classes and will likely extend to at least the Asian trading session tonight. It started with the latest first quarter GDP out of China coming in 0.2 percent below the fourth quarter number and 0.3 percent below the market expectations. It was a downside miss across the board. Simply put China is one of the main economic growth engines of the global economy and if China is starting to slow down market concern and thus the market sentiment is going to quickly move toward a bearish viewpoint for equities and commodities.
I am downgrading my view to neutral for Nat Gas but with a neutral bias as the spot Nymex contract has now breached the $4.16/mmbtu support level and dropped back into the $4 to $4.16/mmbtu trading range.
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 mostly lower heading into the US trading session as shown in the following table.
Dominick Best regards,
Dominick A. Chirichella
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*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.