Fundamental and Technical Analysis
US crude inventories dropped by 6.81m barrels; a huge drop compared to past weeks: US crude oil inventories are filled at the moment and it should be not surprising for inventories to drop. However, a 6.81m drop was significant considering that inventories were only dropping by 2m barrels a week. We attribute this to increased refinery capacity which was at 94.6%. This comes from the anticipation of increased consumption from summer demand. On the other hand, crude production continues to increase to 9.61m barrels/day. This suggests that the previous observations of stagnant production were just temporary.
US natural gas inventories scheduled to be released today at 10.30pm (Singapore Time). If inventories increase by more than 114B ft3 , this would allow current inventories to exceed 2013 levels: This is going to be a very exciting week for natural gas as the gap between current and 2013 inventory levels are converging. We believe that a 114B ft3 increment is very possible and thus, could suggest that current inventories could exceed 2013 levels.
Prices continue on its increase from yesterday. WTI increased more than Brent likely due to the significant drop in US crude inventories. However, the market seems to be discounting the high crude production figure of 9.6m barrels/day. We initially expected US crude production would stagnate with prices at this level but does not seem to be happening. Nevertheless, this would likely put pressure on higher prices in the longer term. Both WTI and Brent Jul’15 found resistance at $61.5 and $65.6 we find it difficult for crude prices to move on further considering that US production is on the rise. For today, we would very likely see some downward pressures from profit taking. We would think a further increase would be unlikely unless Chinese economic figures which will be released today turned out strong. This would signal a boost in demand, however, considering China’s economic slowdown, we lean towards lower prices today. Therefore, we expect prices to drop towards $60 and $64.96 for WTI Jul’15 and Brent Jul’15.
Prices continue on its rally, reaching above $2.9. However, prices displayed severe volatility indicating a weakening upward momentum. We continue to believe in new lows upon inventories breaking 2013 level. If this week’s inventory release shows a 114B ft3 increase, we believe that prices would at least test the support of $2.541. Although we remain convicted that natural gas prices should remain low, volatility for natural gas tend to be extremely high, and would advice caution for investors. In the event that natural gas inventories disappoint, prices would temporarily increase, however, at most till $3. (Read Report)
Source : Phillip Futures Pte Ltd