Fundamental and Technical Analysis
US crude inventories dropped by -4.2m while crude production slumped to 9.4m barrels/day. US natural gas will be released at 10.30pm tonight (Singapore Time): US crude inventories’ drop was the highest we have seen in recent weeks. This allows the record high crude inventories to taper off slightly. On the production side, we are seeing a drop in US crude production which is ideal for the whole oversupply issue. Both these issues have caused WTI-Brent spreads to narrow back again to about -$4. This reflects the usual premium we get for Brent over WTI and believe should be maintained at this level until the next US crude inventory data. US natural gas inventories will be released tonight, which should affect prices heavily. We have observed a bullish bias for natural gas prices due to the coming seasonal demand. Therefore, even if inventories increase, we may not see much drop.
US Federal Reserve turned bullish yesterday, increasing the chances of a rate hike in Sep’15. This also suggests optimistic US Q2 GDP which will be released tonight at 8.30pm (Singapore Time): The US Dollar Index moved upwards to 98 which factors in the bullish sentiments from the Federal Reserve. This bullish statement tips the scales for a rate hike in Sep’15 compared to Dec’15. This also suggests that the US Q2 GDP could turn out better than expected.
For the second day in the row, WTI left Brent behind as it moved upwards by over 1% again. Although the US Dollar Index increased to 98, prices gain support from drops in US crude production and inventories. This counters the drops coming from the US Dollar Index. Therefore, the resulting adjustments came from narrowing spreads which explains the increase in WTI but not Brent. In fact we have noticed that spreads were narrowing even before inventory release. This is almost as though the market already knew how much the inventories would drop by and acted on it. Moving forward, prices should continue to hold at current prices and doubt there would be further drops. Thus, continue to hold our supports for WTI and Brent Sep’15 at $46.92 and $52.68. As for resistance, WTI and Brent Sep’15 should find resistance at $49.5 and $54. Today, it is Brent’s turn to find resistance at the hourly SMA100. Should there be no strengthening of the USD, we would think that the resistance should break and prices should rest above resistance this week.
As mentioned above, prices are displaying some bullish bias as it finds reluctance to move downwards. This keeps Natural Gas Sep’15 price high. Therefore, provided US natural gas inventories turn out weaker than expected, this could easily bring prices to above $2.961. On the flip side, even if inventories turn out robust, we would think the support of $2.753 should be held. (Read Report)