Natural gas rallies

This week I am projecting the fifth net injection into inventory of about 71 BCF. With normal temperatures last week and with a rising production level the injection rate is close to the five year average for this time of the year but likely below last year. My projection for this week is shown in the following table and is based on a week that experienced a minimal colder than normal temperatures over major portions of the eastern half of the US and with above normal temperatures over the western half of the US. The inventory deficit will widen when compared to last year while holding steady versus the so called normal or five year average if the actual numbers are in sync with my projections.

This week’s withdrawal is reflective of minimal Nat Gas heating related demand week that is covered by the report. This week's 71 BCF net injection will be neutral when compared to the historical data. If the actual EIA data is in line with my projections the year over year deficit will widen to about 801 BCF. The deficit versus the five year average for the same week will come in around 984 BCF. The early market consensus is looking for an injection of between 60 to 80 BCF. Last year there was a net injection of 81 BCF while the five year average showed at 72 BCF injection for the same week.

With the exception of gasoline the rest of the oil complex is in positive territory with WTI leading the way higher. The market is reacting mildly to the surprise draw in crude oil stocks reported by the API late yesterday afternoon. Further supporting oil prices are growing tensions once again in Libya as rebels occupying the ports are now saying they refuse to deal with the new… as they call it… illegitimate Prime Minister Maiteeq. Furthermore there is now the possibility that this view can spread to the ports that have been operating for the last several weeks.

On Tuesday the main oil export pipeline in Yemen was blown up by rebels according to a Reuter’s report. About 110,000 bpd of crude oil exports have now been halted. In addition the attackers hot the electricity lines knocking out power in most of the country’s northern cities. Needless to say the geopolitical risk is ratcheting up once again.

The June Brent/WTI spread is narrowing today and currently hovering around the technical range support level of $7/bbl. With Cushing stock levels continuing to decline and approach the pre-surplus average level the negativity that has kept WTI (NYMEX:CLM14) at a discount to Brent (NYMEX:SCM14) is just about all gone as the inventory level in Cushing is just about back to its normal historical level. As the geopolitical tensions on the international side begin to ease somewhat the spread is likely to move closer to its normal historical level of WTI trading at a small premium to Brent.

I am maintaining my Nat Gas view at neutral and moving my bias back to cautiously bearish after today’s bearish inventory snapshot. The spot Nymex contract has now back into the lower trading range ahead of the upcoming lower demand shoulder season. The Nat Gas spot Nymex contract is now in the $4.60/mmbtu to $4.80/mmbtu trading range.

I am maintaining my oil view at neutral and adjusting my bias to cautiously bearish as the market continues to digests the evolving situation in the Ukraine while awaiting further news of Libyan oil. I continue to suggest that you remain cautious on Libya until oil is consistently flowing once again.

Markets are mixed as shown in the following table.


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Dominick A. Chirichella

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