Fundamental and Technical Analysis
Chinese independent refiners gain license to import crude oil: Granting of crude import licenses is one step towards deregulating China’s oil industry. In the past, independent refiners were able only able to import lower grades of oil for refining purposes. With this license, this improves the quality of refined oil within China which should help environmental concerns and also lessen China’s use of heavy crudes. Apart from stabilizing China’s internal pricing of refined petroleum, this also helps boost demand for lighter grades. Thus, could help support both WTI and Brent which are of the lighter grades.
US natural gas inventories increased by 32B ft3 , allowing inventories to fall below 2013 levels: Inventories were showing strength as they remained above 2013 levels for several weeks. The small increase last week caused inventories to fall below that level and allowed prices to remain high. Seasonal demand should be higher during this period which is causing inventories to fall. Depending on how weak inventories turn out, we could see prices climb higher.
Prices moved to another low at the start of the week and rebounded yesterday. Although there has been hardly any change to fundamentals, prices are still facing heavy bearish pressures. We continue to believe that prices should find supports at 2015 lows for both WTI and Brent which are at $42 and $45 respectively. With prices approaching these supports, this could be the last bullish call we are pushing for. Current supports for both WTI and Brent Sep’15 are at $43.53 and $48.24. Although prices are getting support from the weak US Dollar after weak nonfarm payrolls, we are skeptical that this support could last. Ultimately, this could mean that prices could reach 2015 lows, but we continue to believe that this should not break. We would really look forward to more bullishness for oil prices to swing prices back in the bullish favor.
Spreads widened back to above -$5. It would seem that Brent faced more support as it rebounded harder which caused spreads to widen again. Provided inventories continue to drop, we believe that spreads should narrow back to -$3 to -$4.
Prices stayed above $2.8 after natural gas inventories dropped below 2013 levels. Considering the seasonal demand, prices would likely be hanging above $2.8 before inventory release on Thursday. We would think that even if prices undergo some correction before inventory figures, prices could move down to support of $2.793. However, we see greater upside potential as prices could increase to $2.961 in the event inventories remain weak. (Read Report)