Most risk asset markets are higher to start today's western trading session in spite of the long list of downgrades by Moody's, more quantitative easing by Japan... acknowledging their economy is going nowhere quick followed by a larger than expected contraction in Greece's economy just as more austerity is coming on stream. The way and rate at which the Greek economy is contracting the last thing Greece needs is more austerity which is highly likely to result in more contraction and certainly more unrest in Greece. On a positive note German investor confidence came in above the forecasts...but why would it not as the German stock exchange is up 15% year to date. EU Finance Meeting will meet yet again on Wednesday for their second extraordinary meeting on Greece in a week. All signs still suggest that everything is still not well in the developed world economies but yet most risk asset markets remain in positive territory for the day (so far).

WTI is solidly back trading at triple digit levels mostly on concerns coming from the evolving geopolitics of the Middle East region along with added support coming from the melt up in global equities. Currency markets are neutral for oil and most other commodities as the euro is trading near unchanged on the day while the US Dollar Index is marginally higher. Not much new out of China other than a former central banker suggesting that the government was unlikely to aggressively loosen credit this year. His comments were not consistent with the Premier's comments from yesterday so I will still remain more focused on the Premier's comments. that said unless inflation turns around and moves lower after January's surprise increase any easing will be minimal in the short term.

The war of words continued yesterday when the Israeli's accusing the Iranians for the terrorism acts against Israeli diplomats in Georgia and India. Of course the Iranian's denied the accusations. The standoff between the West and Iran continues with Iran supposedly planning on making an announcement on their nuclear achievements in the next day or so.

On the periphery unrest in an oil rich province in Saudi Arabia is starting to deteriorate to violence resulting in the Saudi's bringing armored vehicles to the region. There are clashes occurring between the Shiite protesters on and off since last October with the intensity increasing and thus raising tensions in the largest oil producing nation in the world and the one that also has the vast majority of all of the surplus crude oil capacity in the world. If you recall protests in the region of Saudi Arabia started during the Arab Spring but was quickly quelled by the Saudi government. It seems to be rearing its head once again. This is yet another area of the Middle East along with Syria and Iran that is resulting in the risk premium widening in the price of oil as we saw yesterday and into this morning so far. I can safely say the vast majority of the price move in oil prices over the last several days has been almost totally motivated by the geopolitical risk increasing in the Middle East region.

The global equity markets have been able to discount all of the negatives so far and move back into positive territory for the week as shown in the EMI Global Equity Index table below. The Index is up by 1.7% for the week widening the year to data gain to 11.6%. So far the EMI Index has recovered all of last week's losses and then some. Last week was the first weekly decline after five straight weeks of gains. Brazil and Germany top the list with Hong Kong coming in third place. Global equity markets are trading like and continuing to signal that the global economy is likely to achieve a soft landing. For now the global equity markets remain overbought and susceptible for a modest round of profit taking selling. This week's oil inventory reports will be released on their normal time and day. The API data will be released on Tuesday afternoon while the EIA data will hit the media airwaves at 10:30 AM EST on Wednesday. At the moment oil prices are still being mostly driven by the tensions evolving in the Middle East between Iran and the West (as discussed above) and to a much lesser extent based on the direction of the euro and the US dollar. As such I am not sure many market participants are going to pay much attention to this week's round of oil inventory data suggesting that this week's oil inventory reports may not have a major impact on price direction. At the moment all market participants are continuing to follow the new snippets out of the Middle East and the tick by tick direction of equities and the US dollar (driven by Europe)... as they are both the primary price drivers for oil. Even with the fundamentals and geopolitics starting to impact price it is the macro trade that dominates at the moment. As such this week's oil inventory report could remain a secondary price driver at best and only impact price direction if the actual EIA data is noticeably outside of the range of market expectations for the report. My projections for this week's inventory reports are summarized in the following table. I am expecting a mixed inventory report this week with a modest build in crude oil and gasoline stocks, a seasonal decline in distillate stocks along with a small decrease in refinery utilization rates. I am expecting a small build in gasoline inventories and a seasonal draw in distillate fuel stocks even as winter like weather did arrive for part of the report period in some parts of the US...in particular the east coast. I am expecting crude oil stocks to increase by about 2.0 million barrels. If the actual numbers are in sync with my projections the year over year deficit of crude oil will come in around 4.7 million barrels while the overhang versus the five year average for the same week will narrow to around 9.5 million barrels.

With refinery runs expected to decrease by 0.3% I am expecting only a small build in gasoline stocks. Gasoline stocks are expected to increase by about 0.3 million barrels which would result in the gasoline year over year deficit coming in around 9 million barrels while the surplus versus the five year average for the same week will come in around 2.8 million barrels.

Distillate fuel is projected to decrease by 0.9 million barrels on a combination of an increase in export. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year the deficit will likely now be about 15.6 million barrels below last year while the surplus versus the five year average will come in around 2.6 million barrels.

The following table compares my projections for this week's report (for the categories I am making projections) with the change in inventories for the same period last year. As you can see from the table last year for the same week was directionally in sync with the projections for this week. As such if the actual data in line with the projections there will not be a major change in the year over year comparisons. WTI is still trading above its intermediate support level even with the downside correction last week and recovery so far this week. Brent has also breached its resistance level with a path that could possibly take it to the $118/bbl level. But as with WTI Brent was also in the midst of a modest downward correction pattern from last week and is actually lagging WTI so far this week. I am keeping my view at cautiously bullish but raising the caution flag that the market is still susceptible to a modest round of profit taking selling in the short term. 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. 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.

Not much new to start the week as Nat Gas futures have been trading in a relatively tight trading session all day. The vast majority of the price drivers are still pointing lower but the market has been able to hold relatively steady considering last week's very bearish inventory report as well as what is setting up to be yet another very bearish inventory report this week (see below for more details). The weekend forecasts from NOAA (always subject to change as they are computer driven only) remained bearish with mild temperatures projected to engulf the majority of the eastern half of the US for most of the rest of the month of February.

From a technical perspective the market is less oversold than it was a few weeks ago reducing the susceptibility for a strong short covering rally at the moment. The spot futures contract remains in a triangular consolidation pattern that has been in place for the last several weeks. Statistically the breakout from this consolidation pattern is biased to the direction of the trend that was in place prior to the forming of the pattern...which was down. The breakout points are around $2.388/mmbtu to the downside and about $2.57/mmbtu to the upside. Outside of the consolidation pattern unless there is a significant over performance of inventory withdrawals (highly unlikely) I still do not think the futures market will move outside the boundaries of the current $2.25/mmbtu to $2.85/mmbtu trading range that it has been in since earlier in the year. Barring any major announcement of significant production cutbacks (also unlikely) I am still expecting the futures market to trade with a $1/handle sometime during the upcoming shoulder season.

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

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