Overnight the economic data out of China was yet another sign that the main economic and oil demand growth engine of the world is slowing. China's factory output growth for the month of April came in below expectations. China's April industrial output increased to 9.3 percent in April but below the 9.5 percent market consensus. Fixed asset investment also came in below the expectations growing by 20.6 percent in the first four months of 2013 compared to the same timeframe last year. The market was expecting a growth rate of 21 percent.

The latest numbers are not all that bad but the fact that most of the macroeconomic data that has been hitting the media airwaves over the last several months continues to suggest that the Chinese economy is slowing and not increasing its growth pattern. The current economic pattern out of China suggests that oil demand growth is also likely to follow the economy into a slowing pattern. Last week the EIA lowered its global oil demand growth projection for the second month in a row. Tomorrow the IEA releases it latest monthly oil forecast.

In addition the slowing of global oil demand growth supplies are also starting to increase and not just from non-OPEC areas like the US. Based on the latest monthly report issued by OPEC on Friday Saudi production increased to 9.27 million bpd in April up from 9.13 million bpd in March. In addition OPEC as a group increased production in April by about 0.3 million barrels per day. At the moment demand is faltering, supply is growing and US crude oil inventories are at record high levels keeping a bearish outlook on oil fundamentals for the short to even medium term.

Oil prices were mostly higher last week except for the Brent market. The oil complex ended with gains (except for Brent) for the third week in a row with RBOB gasoline leading the way. The spot Brent/WTI spread continued to narrow modestly compared to the end of the previous week or by 8.28 percent or $0.71/bbl. Refined products markets led the complex higher on the week resulting in all of the crack spread combinations widening for the first time in three weeks.

The spot WTI contract was able to add value last week as US crude oil stocks increased less than expected but are still at all-time record high levels suggesting once again that a major portion of the gains in oil last week were likely the result of macro moves driven by the aggressive QE programs from many developed world countries. WTI increased more strongly than Brent resulting in another weekly narrowing of the June Brent/WTI spread on the week. The spot WTI contract increased by 0.45 percent or $0.43/bbl while Brent declined by about 0.27 percent or $0.28/bbl. Crude oil stocks in Cushing decreased modestly as refinery runs in PADD 2 increased by 0.3 percent suggesting that spring maintenance season may be starting to turn the corner.

The June Brent/WTI spread has narrowed for the last twelve out of thirteen weeks. The June spread narrowed by 8.28 percent or $0.71/bbl. Over the last thirteen weeks the June spread has declined by $10.96/bbl or 58.4 percent (compared to where the spread ended last week). The June spread traded in single digits for the entire trading week and below the $8.25/bbl support level. The spread remains in a trading range of $8.25/bbl (hit back in mid-December of 2011 basis the spot continuation chart) on the resistance side with around the $5.30/bbl on the support side.

However, we may be coming close to a short term turning point (not there yet) as some maintenance in the North Sea will slow production from current levels… like in the Ekofisk field. As such we could see a round of short covering emerging which could in turn send the spread higher for a test of the upper range resistance before making any major narrowing progress. That said in overnight trading the spread has actually narrowed further by about $0.15/bbl compared to Friday's close.

On the distillate fuel front the Nymex June HO contract increased by 0.76 percent or $0.0218/gal on the week even as distillate fuel inventories increased strongly on the week on temperatures that were beginning to be spring like over parts of the US during the report period. Gasoline prices increased modestly after a surprise decline in inventories last week. The June Nymex gasoline price increased by 1.24 percent or $0.0.349/gal this past week.

The June Nat Gas futures contract decreased modestly for the third week in a row by 3.24 percent or $0.131/mmbtu on the week after failing to breach and stay above the technical and psychological $4.00/mmbtu level. The spot contract is now trading in a lower range with $4/mmbtu on the resistance side and $3.85/mmbtu now the new support level.

Nat Gas prices were under light selling pressure to end the week as we head into what is looking like a spring weather weekend in many places around the US and thus a low demand timeframe for Nat Gas from both a heating and cooling basis. The latest NOAA six to ten day and eight to fourteen day forecasts are also projecting more spring like weather across a major portion of the US with the western half of the US showing pockets of above normal temperatures. Through the third week in May the temperature forecasts are projecting what looks like a period of minimal if any heating related Nat Gas demand as well as not much Nat Gas related cooling demand. We are finally in the heart of the low demand shoulder season which shoulder result in normal to even above normal Nat Gas inventory injections over the next two to three weeks… at least.

From a technical perspective the spot Nat Gas futures price has been hovering below the key technical and psychological $4/mmbtu level for most of the entire week. The futures contract is settling into the $3.85 to $4/mmbtu trading range as the lower demand shoulder season is capping any near term upside moves while the lower that normal inventory level (compared to both last year and the five year average) is currently putting a floor on prices. The market may wind up trading in a relatively tight trading range until there is more clarity as to if and when cooling demand will emerge… if at all.

With the latest NOAA six to ten day and eight to fourteen day forecasts becoming more seasonable the call on Nat Gas for heating or cooling related demand over the next several weeks is going to be minimal if at all.

On the financial front equity markets around the world were mostly higher on the week. The EMI Global Equity Index is now showing a gain for the year of 2.44 percent or the highest level since early March. The Index increased by 1.31 percent last week. Global equity markets were a positive price driver for the oil complex last week.

The euro was lower on the week while the US dollar Index gained modestly with the Yen continuing to decline. Last week the US dollar was a negative price driver for oil and most commodity markets.

I am maintaining my view of the entire complex at neutral. Global demand growth is still looking like it is turning to the downside. On the other hand the market has been pushing oil and other commodity values higher as more liquidity from advanced country central banks continues.

I am maintaining my view at neutral for Nat Gas and keeping my bias at cautiously bearish as lower prices may still be in the cards. The fundamentals are less supportive after last week's inventory snapshot. Markets are mostly lower ahead of the US trading session as shown in the following table.

Dominick A. Chirichella

Follow my intraday comments on Twitter @dacenergy.

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