Fundamental and Technical Analysis
US natural gas inventories increased by 52b ft3: US natural gas inventories increased which was slightly below estimates of about 55b ft3. This was rather unique as an underperformance of inventories would usually result in higher prices. However, this week was different as prices dropped even when inventories underperformed. Nonetheless, compared to past weeks, we can easily see that natural gas inventory increases are tapering off which reflects the increasing seasonal demand. With inventories only increasing by 52b ft3, this could be one of the last drops in prices we could be seeing.
Optimistic US Q2 GDP released yesterday at 2%, higher than estimates of 1.5%: Considering the bullish Federal Reserve statement, expectations of a strong GDP figure for Q2 should be expected. The optimistic Q2 GDP is allowing the US Dollar Index to maintain at 97.5. This should be ideal with energy prices as the USD is not strengthening much further which could support prices.
Prices remained strong even in light of a stable US Dollar Index. Although we are seeing prices adjusting downwards, this likely stems from some adjustments of a strong USD strength and adjustments to trading positions as oil finds a bottom. In fact, on a longer term basis, growth from the US economy would likely give some support to oil demand which could help support prices. For today, we are unlikely seeing much change to oil fundamentals and suggest that prices should continue to consolidate at this range. Therefore, we continue to hold our supports for WTI and Brent Sep’15 at $46.92 and $52.54. On the flip side, for resistance, we are seeing Brent moving below the hourly SMA100. This is not bullish for prices and would think that upwards movements will depend on this. WTI-Brent spreads should hold at current levels and with Brent not moving up, we believe that this is holding WTI back. Hence, should Brent break past the hourly SMA100, we would think that both WTI and Brent should move upwards together. This means that WTI and Brent Sep’15 should find resistance at $49.5 and $54.
Prices dropped by over 3%. As mentioned before, it is a rare occurrence that prices fell when inventories underperformed. In light of the underperformance and higher seasonal demand, we actually grow more convicted in upward movements for prices at least till next inventory release. The market should realize that price drops were uncalled for and prices should correct. Nonetheless, the supports of $2.753 that we gave held strongly and even think that the current price gives a good discount to enter. We aim for prices to move upwards towards $2.961 for Natural Gas Sep’15 by next week. (Read Report)
Source : Phillip Securities Research