Phillip Futures Energy Daily Outlook - Bearish energy prices ahead due to a possible strengthening USD. With the US Dollar Index at 95, upside is expected.

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Fundamental and Technical Analysis
US FOMC meeting scheduled on Thursday, 2am (Singapore Time): The decision of an interest rate hike would be the key issue today at the FOMC meeting. The US Dollar Index remains stable at 95, displaying reluctance to move until the interest rate decision has been made. We believe that there should be more opportunities for the USD to strengthen. This is because even if the Federal Reserve does not hike interest rates, we would likely receive a bullish statement that should cause the US Dollar Index to at least move above 95. This would threaten USD denoted energy prices and should face some downward pressures today.

US crude inventory scheduled to be released today at 10.30pm (Singapore Time): With WTI-Brent spread narrowing towards -$3, this week’s inventories would likely be important to gauge if the spreads would be staying narrow. Apart from that, we will be waiting to see how much production increases by. In the event it continues to increase, we should be worried about more supply issues moving forward.

Market Summary

Crude Oil:
The market remains at the edge of their seat, waiting for both the FOMC meeting and US crude inventories before making a move on prices. This caused prices to hold stable at their respective levels. With unchanging oil fundamentals, the USD movements will be depicting prices to a large extend. Considering that the probability for the USD to strengthen is higher today, we expect crude oil prices to drop. WTI and Brent Aug’15 could move down to support of $59.6 and $63 and even further if the USD strengthens more than expected. We believe that if the US Dollar Index manages to move to 97.8, it is possible for WTI and Brent Aug’15 to move even lower to $58.96 and $62.38.

WTI-Brent Spread:
The narrowing continues as spreads close to -$3.25. Depending on how much US crude inventories drop, we expect to see spreads stay at this narrow range or widen back. We believe that the comfortable premium for Brent to command over WTI would be between -$3 and -$4. This suggests that spreads have not much more room to narrow.

Natural Gas:
Prices moved downwards at the start of US trading hours but recovered over the day. Our expectations of prices moving higher on a bullish momentum did not seem to be realized. For the rest of the week, we expect to see more downside for natural gas. With inventories expected to increase again and a stronger USD, this would very likely cause prices to drop further. As a result of these 2 events, we expect Natural Gas Aug’15 to drop to $2.606 towards the end of the week. (Read Report)

Source : Phillip Futures Pte Ltd