RBOB is higher for the second day in a row while the rest of the complex is now in negative territory. The oil complex is certainly not participating to the fullest extent along with the equity markets which have hit new all time highs in both Europe and the US. WTI has separated itself form Brent for the last several days as the Brent pipeline system resumes production sending the Brent/WTI spread down strongly and now trading below the range support level that has been in play since early February. The entire oil complex is in a technical bottoming pattern with some of the commodities in the complex ahead of others.

Oil market participants have been very cautious over the last month or so as the global economy continues to grow at a slow pace but with signs that certain regions may be starting to pick up a bit... like the US. However, even with the global equity markets staging a modest recovery rally over the last several weeks there are no clear cut signs that all of this is going to translate into a growth spurt in oil consumption anytime soon.

Next week the three oil forecasting agencies will release their monthly oil projections. Last month the IEA lowered its projected oil consumption for 2013 by 90,000 bpd. I am of the view that the three agencies will likely keep their forecasts at the same levels as last month with a possibility of even lowering the forecast a tad as GDP data since the last report has not shown any noticeably signs of improving over the previous period data. Although equity markets in several regions of the world are hitting new highs that does not translate directly to an increase in oil consumption... but it does often act as a leading indicator for what the state of the economy will be looking like down the road.

On the supply side of the equation there are currently no shortages of oil anywhere in the world at this time... nor does it look like a shortage will crop up anytime soon. The North Sea has returned to normal for both Brent and Forties and with the exception of the force majeure by Shell for their Bonny Light production the global oil situation is more than balanced right now.

Thus from a fundamental viewpoint oil is currently neutral to even slightly bearish which is the main reason why oil prices have not been fully participating alongside equities in the upside rally. As mentioned above from a technical perspective the complex is forming a bottom and could eventually participate more completely to the upside assuming equities continue to push higher.

Overnight there was mixed economic data out of China as the annual leadership meeting continues. China posted a surprise trade surplus in February versus a projection for deficit. On the oil side the main oil demand growth engine of the world saw its net crude oil imports decline to the lowest level in five months. Imports dropped to 5.4 million barrels per day according to figures posted on the website of the General Administration of Customs today. This is contributing to my view that the three main agencies will keep their oil consumption projections unchanged at best in next week's rounds of reports. There was minimal reaction in Asian trading to the data.

The latest GDP data out of Japan showed that this major exporting economy returned to growth in Q4. GDP rose an annualized 0.2 percent in Q4 compared to an earlier reading showing a 0.4 percent contraction. I would say that the declining Yen has given many of the major export companies a boost. It is also a sign that aggressive easing may be finally starting to work. The outcome is likely to also be supportive for even more aggressive easing as the new BOJ head takes over the reins. The aggressive easing by Japan, US and the UK are all supportive for global commodity prices... including oil.

After Wednesday's better than expected ADP private sector jobs report along with an improvement in the weekly initial jobless claims on Thursday the market is now expecting a strong report from the US Labor Department today. The nonfarm payroll data and headline unemployment number will be released at 8:30 am today. The market is expecting a modest increase in jobs on Friday of about 165,000 to 170,000 new jobs versus a gain of 157,000 new jobs in January. The headline unemployment rate is expected to remain steady at 7.9%.

The US employment situation has taken on an elevated level of importance by the market as the US Fed has linked much it its monetary policy... including their massive money printing operations to the state of the jobs market in the US. Any sign that the jobs situation is improving at a faster pace than the market is currently forecasting would likely be interpreted by market participants that the Fed might potentially end its quantitative easing program sooner than originally expected. If so the US dollar would rise and oil and most other commodity prices would likely decline further from current levels.

Global equity markets have continued to add value as shown in the EMI Global Equity Index table below. The Index will end the week with a strong gain with the Index currently showing a weekly gain of 2.5 percent with Europe and the US still trading. The year to date gain has widened to 2.4 percent and is back to where it was back in late January. Japan continues to surge and is now higher by 18.2 percent for 2013 as the market is expecting even more aggressive easing as the new BOJ head takes charge. Australia is now showing a double digit gain for the year and is holding second place in the Index with two other countries liberally employing aggressing easing the US and UK rounding out the top four leaders in the EMI Index. As the saying goes don't fight the Central Banks that are keeping the money printing presses rolling around the clock. Low interest rates and aggressive quantitative easing continue to support the global equity and commodity markets.

I am maintaining my view of the entire complex at neutral as the oil complex appears to be putting in a short term technical bottom. I do not think the oil market trend has changed just yet (thus my neutral rating) but it is starting to show the signs of change and thus it is time to be on the alert.

I am maintaining my Nat Gas view and bias at neutral even as the weather forecasts are less supportive than earlier in the week. As I have been discussing for weeks the direction of Nat Gas prices are primarily dependent on the actual and forecasted weather pattern now that we are still in the heart of the winter heating season and currently those forecasts have turned a tad more bullish at the moment.

Nat Gas bulls got what they were hoping for on Thursday an inventory miss on the upside. The weekly Nat Gas withdrawal came in at 146 BCF versus the industry consensus of 134 BCF. The market has known for over a week and had already priced in the fact that the report was going to be bullish versus both last year and the five year average. What was not priced into the market was a larger than expected withdrawal... which is exactly what occurred sending the spot futures contract back above the $3.50/mmbtu range resistance level.

After falling back below this key $3.50/mmbtu technical range for the last several days the market has now likely settled above this level and will once again it will now be a technical support level. For now we are back into a higher $3.50/mmbtu to $3.66/mmbtu trading range... assuming it holds. Recall we have failed above this level back during the second half of January and we failed earlier this week. As such I would like to see several settles above the $3.50/mmbtu level to gain confidence that the breakout may be real this time.

Markets are mixed 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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