After a week with a bit of optimism that some of the key pieces looked like they were falling place to orchestrate a soft landing in most of the global economies Europe has moved back into the forefront as a Greek deal is still not done. Many investor/traders were slowly pricing in a Greek deal being completed sometime last week...and then during the weekend but still no deal. The market is reacting negatively with most risk asset markets lower to start the week as the confidence level wanes that a deal will be done by the morning deadline today...especially since several deadlines have already been missed.

The euro has been trading in negative territory since trading began last night resulting in the US dollar firming and oil (most commodities) and equities are all lower as a result. The macro trade was definitely the dominant trade during the Asian trading session and has been during the European session so far with US equity futures pointing to a lower opening on Wall Street this morning. The positive bounce in risk assets on Friday from the much better than expected US nonfarm payroll number seemed to be running out of steam by Friday's close and the growing sentiment that the markets are overdone or oversold has carried into today with Greece currently acting as the catalyst for the current modest profit taking selling in oil and equities.

The evolving geopolitics surrounding Iran and Nigeria are still in the forefront but for today they are acting more as a floor in prices rather than a price driver. That said although oil prices are lower to start the day the geopolitical risk premium is still growing on the Brent side of the world as the Brent/WTI spread has widened another $0.40/bbl or so on the day on a combination of pipeline issues in Nigeria and the uncertainty in the Middle East. The ENI pipeline in Nigeria was struck by the MEND group in the Niger Delta region. It was not a big event but more of a reminder that the situation in Nigeria is becoming less stable once again in both the oil rich south and in the north where Boko Harem has been causing havoc with suicide bombings. A small amount of oil was lost due to the MEND action.

In the Middle East more sanctions are potentially evolving after the US Senate passed another set of sanctions that could impact a much wider group of companies doing business with Iran as the newly proposed sanctions are directed to the main oil tanker fleet that moves Iranian oil to the market. Whether or not all of the sanctions that have been put in place so far or the newly proposed ones (above) will have an impact on Iran's nuclear program is a big unknown. Iran has been ramping up its rhetoric and has been sending out its naval fleet in an effort to show its military strength to the west. The big wild card is will the Israeli's feel comfortable enough that all of the sanctions will make a difference or will they continue to be very concerned over the potential threat of Iran developing a nuclear weapon If the threat is a growing sentiment of the Israeli government the potential for an Israeli attack on Iran will grow. There was indications in an article last week that the Israelis may possibly launch an attack sometime this spring.

In my view the single biggest threat to the flow of oil in the region will be if the Israelis launch an attack on Iran's nuclear facilities which for certain will result in a strong response by the Iranians. This is a huge wildcard and as I have been saying it is currently acting as a floor in prices and if the likelihood of such an attack grows the floor will quickly switch to an upside price driver as the risk premium will grow very quickly.

The equity markets ended the week strongly higher even as the US dollar was about unchanged on the week while the euro continued to weaken. As the situation in Europe unfolded and by the time the end of the week arrived most all risk asset markets (not so much on the energy front) were able to end the week in positive territory and close to the highs of the week. Last week was mostly about the positive coming from Europe coupled with the positives coming from the US...especially after the better than expected US nonfarm payroll number... while the war of words between the west and Iran continued. The action and volatility last week was in all of the oil and commodity markets as well as the global equity markets. Last week was all about market players acting around the cloud of uncertainty that seemed to marginally shrink for some (equities) risk asset markets. Equity bourses were higher even as uncertainty started to decrease by the end of the week. Precious metals increased modestly as the US dollar was marginally higher on the week as cash moved into a variety of risk asset markets but out of the euro. Over the last week the oil complex was mixed with WTI modestly lower and Brent higher as the geopolitical risk premium mostly impacted Brent. The Mar WTI contract decreased about 1.73% or $1.72/bbl. The Mar Brent contract ended the week strongly with a modest gain of 2.8% or $3.12/bbl. The Mar Brent/WTI spread moved higher and broke out of the trading range it has been in for the last month or so as tensions in the Middle East and Nigeria raised the risk of an interruption in supply with the market placing that risk premium almost solely in Brent and not WTI.

On the distillate fuel front the Nymex HO contract increased as distillate fuel inventories decreased marginally and US distillate fuel exports were flat on the week. The spot Nymex HO contract increased by 1.80% or $0.0551/gal. Gasoline prices decreased on the week as gasoline stocks increased strongly (for the second week in a row) and much more that the expectations. The spot Nymex gasoline price decreased by 0.31% or $0.0090/gal this past week.

On the week Nat Gas futures were pummeled once again as the winter has still not arrived in most regions of the US. Nat Gas futures declined by 9.33% or $0.257/mmbtu after recovering modestly the previous week. In the midst of a major surprise in this month's US nonfarm payroll number and a major rally in most risk asset markets Nat Gas futures remained in negative territory throughout the vast majority of Friday's trading session. That said the market has recovered the vast majority of its earlier day losses and is starting today's session in positive territory (so far).

Not much has changed over the last week or so other than the market sentiment has been so bearish and the market so oversold new shorts are reluctant to enter the market at the current level and are likely waiting for an opportunity to sell into a modest rally...something closer to the upside range resistance level of around $2.85/mmbtu. In addition some other shorts are starting to head to the sidelines on concerns that the market might not get to a test of the range lows of around $2.25/mmbtu in the short term.

The weather remains mildly supportive with the eastern half of the US expecting normal temperatures over the next several weeks while the western half of the country is still projected to experience above normal temperatures. The weather forecast is only mildly supportive in that I do not think it is going to result in any major withdrawals from inventory and in fact I am still expecting inventory withdrawals to underperform versus last year and the five year average for most of the rest of February. If so total inventories are likely to be at record high levels at the end of the winter heating season.

On the financial front equity markets around the world ended decidedly higher for the fourth week in a row. Fear of contagion coming from the southern EU member countries... is still a huge concern in the financial markets but did ease a tad as the week progressed (however the sentiment is changing a bit as a Greek deal is still not in place). Global equity values increased as shown in the EMI Global Equity Index table below. The EMI Index gained 2.6% on the week. Over the last week the Index held most of its gains as the euro declined modestly and the US dollar was about unchanged (moves in this direction normally result in modest moves to the downside in equities. Last week the global equity markets were a positive driver for oil and most commodity prices.

The WTI is hovering around the intermediate support level while Brent is in a slowly evolving uptrend. The momentum has changed and continuing to look toppy...especially for WTI. However, I am still keeping my view at neutral (with a bias to the downside for WTI). I am currently expecting intermediate support around the $97.00/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. I am still keeping my view at neutral and bias at bearish as once again there is not much supportive indications that Nat Gas is likely to embark on a major short covering rally anytime soon. Today's EIA inventory report did over perform and is bearish even though the market is trying to embark on another modest short covering rally. 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.

Currently markets are mostly lower as shown in the following table.

Best regards, Dominick A. Chirichella dchirichella@mailaec.com Follow my intraday comments on Twitter @dacenergy.