Even with latest short term weather forecasts turning more bullish than last week's forecasts the market has been unable to regenerate the short covering rally experienced last week. Prices have been lower so far for the week and continued to be sold into in the overnight session (so far). The most recent NOAA temperature forecast for the six to ten day period is projecting normal to some areas of below normal temperatures for the eastern half of the US while the west is expected to remain above normal. The eight to fourteen day forecast is similar to the six to ten day except the area of below normal temperatures covers a wider area.

With more than half of the winter heating season now in the history books even more normal winter weather does not seem to be enough to have a major impact on the growing surplus in inventory versus last year and the five year average and thus the main reason why the short covering rally has lost all of its momentum. Winter inventory withdrawals have been underperforming for the entire winter season so far and a few weeks of inventories possibly coming in at near normal withdrawal levels is not likely to have a major impact on the large surplus in inventory.

I remain bearish for the medium to longer term and for the moment I am still carrying my short term categorization for the market at neutral but with a bias to the downside.

This week the EIA will release the weekly Nat Gas inventory report on its regularly scheduled day and time...Thursday, February 2nd. This week I am projecting a net withdrawal of 110 BCF which is modestly below both last year and the five year average for the same week. I adjusted my projection downward after fine tuning my projection calculations. My projection for this week is based on a week that experienced more winter like weather over a major portion of the country as shown in the following table. My withdrawal forecast is based on the fact that heating related demand was below normal last week in most parts of the country. My projection will be below last year's net withdrawal level of 187 BCF and below the normal five year average net withdrawal for the same week of 186 BCF. Bottom line the inventory surplus will build again in this report period but not as strongly as over the last four or five reports. If the actual EIA data is in line with my projections the year over year surplus will widen to around 608 BCF. The surplus versus the five year average for the same week will widen to around 623 BCF. This will be a bearish weekly fundamental snapshot if the actual data is in line with my projection. The industry is projecting a new withdrawal of 100 to about 140 with the consensus forming around a withdrawal of about 115 BCF.

Yesterday was pretty much a downside correction day as most risk asset markets have been steadily rising since the beginning of the year and as I have mentioned most are in an overbought state. The losses were modest compared to the gains accumulated so far for the year. Overnight oil bounced off of its low on news that the EU Summit ended with progress in some areas (not in solving Greece's issues) while the latest Japanese industrial production data came in better than expected. From a technical perspective oil and equities remain in an uptrend and still susceptible for further downside corrective moves while the US dollar is still in a short term downtrend with short covering still a possibility.

The EU is still struggling with the evolving debt problems in Greece and left yesterday's summit with no accord over how to stop the widening budget problems in Greece. The Greek deal with their bondholders is still not finalized and as such it is looming over the EU's ability to continue to try to refinance Greece and move their debt situation to a more sustainable level. The objective is still to have a deal done by the end of the week.

I am still keeping my view and bias at neutral as the short covering rally could regenerate itself this week. That said the surplus is still building in inventory versus both last year and the five year average is going to get harder and harder to work off even it gets cold over a major portion of the US and as such for the medium to longer term I am still very skeptical as to whether NG will be able to muster a sustained upside rally over and above a short covering rally. The WTI market remains above support but is stuck in a tight trading range at the moment. the momentum has also changed and starting to look toppy once again. However, I am still keeping my view at neutral. I am currently expecting intermediate support around the $97.60/bbl area basis WTI and $109.50/bbl level for Brent with resistance around the $104/bbl level for WTI and $113.75/bbl for Brent.

Currently markets are mixed as shown in the following table.

Note I will not be publishing the Energy Market Analysis as I will be traveling back to the US on Wed. Normal publishing will resume on Thursday. Best regards, Dominick A. Chirichella dchirichella@mailaec.com Follow my intraday comments on Twitter @dacenergy