Phillip Futures Energy Daily Outlook - Bearish trend continue to test price supports; how far will oil bears go?

Fundamental and Technical Analysis 
US crude inventories dropped again by 4.4m barrels while production remains below 9.4m barrels/day: Inventories resume its drop as it went down by over 4m barrels. Although US inventories are still at a high, inventories easing off are a good start. Inventories remaining high despite high US refining activities could have come from increased imports of crude which has eased off; hence, resulting in lower inventories. US crude production remains low at 9.4m barrels/day which is ideal for global crude supply. We are looking towards this figure dropping more as a source of easing of this oversupply issue.

US natural gas inventories scheduled to be released tonight at 10.30pm (Singapore Time): Inventories are going to play a crucial role to natural gas prices. Inventories should be starting to decrease with impending seasonal demand. Natural gas demand peaks at Jan and Aug which should give some support to prices. However, bearing in mind that inventories are much more robust now compared to last year, we may not see prices surge past $3. This will all depend on inventories which show the significance of natural gas inventories.

Market Summary

Crude Oil:
Prices continue to test price supports. Oil bears are really strong this time around as they constantly test supports without any change in fundamentals. In fact, prices are still falling despite the USD strength maintaining stable. Even in the midst of falling US inventories, prices still managed to test the support of $45.08 and $49.53. Judging from both the momentum of the bearish trend and how previous supports were broken, it seems only a matter of time before prices test lower supports. Oil bulls could really need some bullishness in order to swing prices in their favor. We again reiterate our final support at $42 and $45 for WTI and Brent and continue to believe that this should not break. Prices should continue to test supports moving downwards but should rebound by this level.

WTI-Brent Spreads:
Spreads continue to narrow and closes in on -$4. The likely cause of spreads being wide in the first place should have come from high US inventories. With that easing off, spreads should move towards -$3 to -$4. We have noticed that spreads tend to narrow as prices reach bottoms. This was previous seen in the earlier rout and would think that this could happen again if prices fall to test 2015 lows.

Natural Gas: 
Prices are holding their ground at about $2.8 in anticipations of US natural gas inventories today. Prices are very likely to continue to move rangebound depending on how inventories turn out. Provided inventories turn out lower than expected, we would see Natural Gas Sep’15 move up towards resistance of $2.882. (Read Report)

Source : Phillip Futures Pte Ltd

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