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
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
Labels: Oil and Gas sector