Oil range bound ahead of inventory reports

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's inventories are not in directional sync with this week's projections. As such if the actual data is in line with the projections there will be modest changes in the year over year inventory comparisons for just about everything in the complex. 

I am maintaining my view of WTI at neutral to cautiously bearish and maintaining my view for Brent at neutral to cautiously bearish. That said I am continuing to fly the caution flag as any additional equity market corrections will impact oil prices in much the same way... a round of profit taking selling. Furthermore the spot Brent contract has breached its technical resistance level of about $118/bbl suggesting lower prices in the short term.

For the third week in a row Nat Gas futures are staging a short covering rally ahead of the weekly Nat Gas inventory report. The market is also getting an assist from the round of cold temperatures experienced so far this week along major parts of the country. Whether or not the rally is going to hold through the inventory report is a big question because this week's inventory withdrawal will be below both last year and the five-year average and thus a bearish report.

From a technical perspective the spot Nat Gas futures contract has once again moved back into the $3.20/mmbtu to $3.50/mmbtu trading range that has been mostly in play going back to November of 2012. Since the market failed to stay below the $3.20 level, I would say the very short-term momentum has shifted to being more biased to an upside... assuming this week's inventory report does not make the new long side entries very uncomfortable.

I am upgrading my Nat Gas view and bias neutral as the weather forecasts and nearby temperatures are supportive. 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.

Markets are mixed as shown in the following table.

Best Regards,

Dominick A. Chirichella

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