Fundamental and Technical Analysis
US crude oil inventories scheduled to be released today at 10.30pm (Singapore Time): Inventories have been easing off after refinery activity increased over the past weeks. We continue to expect drops in inventories as there should be little disruptions to refinery activities. This means that we would continue to see the WTI-Brent spread narrow. US crude production, on the other hand, is our main concern as it continues to hit new highs last week. We believe that only unless US production starts to ease off, then we would be seeing improvements to the supply situation. However, the fact that it continues strong questions the easing of the supply glut.
Prices recovered yesterday increasing by 3.3% for WTI Jul’15 and 3.4% for Brent Jul’15. There were no major changes from last week and we see this price increase coming from oil bulls entering back into the markets. It seems that at the current market conditions, the market values WTI and Brent at $60 and $64 respectively, reluctant to allow prices to deviate much from this level. For today, we expect majority of the movements to come from US crude inventories. Since we expect further drops in the inventory figure, we expect some upward movements ahead. However, we would still need to be wary of strong production figures. We believe that the previous 2 weeks could be an anomaly and continue to believe that crude production should start to decrease moving forward. We expect prices to recover towards their respective resistance levels of $61.5 and $66 for WTI Jul’15 and Brent Jul’15. However, on the flip side, if inventories do not drop more than expected or if production continues to increase, we could easily see prices drop to support of $59.18 and $63.37 for WTI and Brent Jul’15.
Spreads continue on narrowing as it moves below -$5. Considering that the US crude inventories are lowering, we believe spreads should narrow further. Brent should only command a premium over the WTI at about $3-4 and thus, suggest that there is more room for spreads to narrow.
Prices seem to have a strong upward bias for prices as we have been seeing rallies whenever prices drop too low. In the month of May’15, prices reached the high of $3.105 and a low of $2.633 which is a fine display of natural gas volatility. Most of these movements were sparked by a small weakness in natural gas inventory buildup, which was solved as we reached towards the end of the month. Current inventories are expected to continue increasing. With current inventories only at a 18Bft3 deficit from 2013 levels, we believe that this week could be the week that inventories surpass 2013 levels. Thus, suggesting a possible new low for natural gas prices. (Read Report)
Source : Phillip Futures Pte Ltd