Phillip Futures Energy Weekly Outlook - With US Dollar Index set to increase, energy prices would likely take a bearish tone for the week.

US FOMC meeting scheduled on Thursday, 2am (Singapore Time): The sentiment towards this decision remains mixed as economic figures only picked up towards the end of May. With the US dollar index hovering slightly above 95, it is very likely that we will see a strengthening regardless of the decision. We believe the key to deciphering how the US dollar index will move depends on the tone of the FOMC in the event of no interest rate hikes. A bearish tone, which should be highly unlikely, would suggest USD weakness. However, other scenarios would likely result in a stronger USD.

German ZEW economic sentiment survey and Japan Trade data will be released on Tuesday and Wednesday, 5pm and 7.50am (Singapore Time): German ZEW economic sentiment would likely give an 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. Japan, on the other hand, showed surprisingly strong Q1 GDP figures. In the time where crude demand is much needed to keep prices up, it is crucial for EU and Japan to show promising results. If these economic figures do not improve, it is likely that we could see some weakness in prices.

Market Summary

Crude Oil: 
The market continued to make adjustments across the week with OPEC’s decision to keep production stable. This led prices to stabilize and ended higher for both WTI and Brent. The WTI-Brent spread started to narrow on reducing crude inventories. The spread narrowed to -$4 and if inventories continue to reduce, narrowing to -$3 spread is possible.

The Week Ahead:
The FOMC meeting is very likely going to play a crucial role in prices this week. As mentioned earlier, we believe that the USD has more possibilities of strengthening. This indicates that crude prices would take likely show weakness similar to how it opened today and believe that prices could drop to $58.18 and $61.78 this week.

Natural Gas: 
Inventories nearly surpassed 2013 inventories last week as it fell short by 3B ft3. This caused the positive momentum we saw earlier in the week to fade as prices dropped to $2.751.

The Week Ahead:
We expect similar price movements for natural gas as we will see with crude as the USD strength would likely depict movements this week. However, with prices retracing to the 50% Fibonacci level, we forecast some recovery earlier in the week with possibilities of climbing nearer to $2.9. However, this would very unlikely last as prices would face severe downward pressure with a strengthening USD and with inventories exceeding that of 2013. (Read Report)

Source : Phillip Futures Pte Ltd

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