Phillip Futures Energy Daily Outlook - Natural gas retraced after reaching the 50% Fibonacci level, positive momentum could continue but unlikely to carry on for the week.

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Fundamental and Technical Analysis
German ZEW economic sentiment survey will be released later at 5pm (Singapore Time): German ZEW economic sentiment would give a clearer understanding of the Eurozone growth moving forward. We saw promising results just when EU’s QE program started. However, they started to show weakness in recent months. If the Eurozone economy does not pick up despite the stimulus, we may find difficulty for crude demand to pick up from the region. Although Eurozone is not the biggest importer of crude oil, in a time of weak demand, every bit matters.

Market Summary

Crude Oil:
Prices continue dropping again, however, only slightly especially for WTI Aug’15. We are seeing more drops for Brent Aug’15 as the spreads narrow in to below -$4. We believe this is a result of US crude inventories easing off and would be explained further in the next segment. Overall, the drop in crude prices was not surprising as we expect this to be a bearish week. This bearish expectation comes from the FOMC meeting scheduled on Thursday. We expect the USD to strengthen as a result which would put downward pressures on prices. Even today, we do not expect a strong German ZEW economic sentiment survey, and thus, we could see more weakness in prices. Therefore, we will not be surprised that WTI and Brent Aug’15 continue to remain low. However, we believe prices should stay at $60 and $64 which are strong psychological supports. Even if prices do break this level, we expect WTI Aug’15 to find support at $58.96 and Brent Aug’15 at $62.38.

WTI-Brent Spread:
Spreads continue to narrow below -$4 for the first time in weeks. Previously, the widening was led by an oversupply in US crude inventories. However, with refinery activity picking up, spreads continue to narrow and should stay within this range for now. Moving forward, if inventories continue to drop, we could see spreads remain at -$3. Although it is possible to see spreads reach -$2, this would likely be temporary as it should be more sustainable between -$3 and -$4.

Natural Gas:
Prices spiked by more than 4% as we have expected after it retraced to the 50% Fibonacci level. Since prices have reached to the $2.947 resistance, we find it unlikely that this increase could continue. With both the US Natural Gas inventory data as well as the FOMC meeting likely to cause prices to fall further, we find more potential for investors to enter a short position on natural gas. For today, it is possible for prices to continue on its positive momentum. However, towards the end of the week, this should not be the case. We expect prices to drop to $2.606 for Natural Gas Aug’15 towards the end of the week especially if inventories exceed the level of 2013. (Read Report)

Source : Phillip Futures Pte Ltd