Fundamental and Technical Analysis
Federal Reserve turned bearish, keeping US interest rates at 0.25%; US Dollar Index drops to 94: The much awaited US interest rate hike is not going to happen in June. Both forecasted 2015 GDP and unemployment were revised, to reflect a more bearish note on the US economy. This caused the US dollar index to drop to 94 which reflects the weakening USD.
US crude inventory decreased by 2m barrels: Inventories continue on its decrease, however, lower than the market would have liked. This week’s inventory drop pales in comparison to last week’s. Thus, we expect spreads to widen as it has narrowed a great deal over the week. On the other hand, US crude production maintained at about 9.5m barrels/day. Although production affects more of the longer term outlook, we find comfort that production is not increasing further.
US natural gas inventories scheduled tonight at 10.30pm (Singapore Time): We have been aiming for inventories to increase over the 2013 level which should cause prices to drop. The deficit between current and 2013 inventories is now narrowed to 3B ft3 . Provided this week’s inventories increase by over 94B ft3 , this would cause current inventories to increase above what we had in 2013.
Markets displayed volatility with WTI moving up to over $61 before US crude inventory data. Prices collapsed to $59 after inventories only decreased by 2m, suggesting that the data was disappointing. Prices were revived by a weakening USD as a result of a bearish FOMC. This allowed WTI and Brent Aug’15 to return to about $60 and $63.70. Since we expect the FOMC meeting to be the main card for this week, we believe that prices should move sideways for the rest of the week. Especially for WTI, deviations away from $60 for this week would be unlikely.
With inventories decreasing by only 2m barrels, we expect the spreads to widen slightly. The market seems to have anticipated another 8m barrel drop which allowed spreads to narrow to -$3.25. With a 2m barrel decrease, we expect spreads to end the week nearer to -$4.
Prices spiked to $2.977 at the start of US trading hours. This was corrected shortly after. We had initially expected the weakening USD to push Natural Gas prices up, however, it hardly reacted. Today, we expect prices to react to natural gas inventories. Provided inventories increase by 94B ft3 , we believe that prices should drop at least towards $2.777. This has been the event we have been waiting for and believe it would happen this week. (Read Report)
Source : Phillip Futures Pte Ltd