Fundamental and Technical Analysis
US crude inventories decreased by about 1.6m barrels which were lower than expected; US natural gas inventories scheduled to be released tonight at 10.30pm (Singapore Time): Inventories have been dropping by over 4m barrels for the past 2 weeks. This week, US crude inventories had only dropped by 1.6m barrels which were of no help to oil bulls. This also caused spreads between WTI and Brent to remain wide at above -$6. US crude production, on the other hand, continues to show bullishness with production dropping below 9.4m barrels/day. In the longer run, this is ideal for markets and we believe that global oversupply is easing off. US natural gas inventories will depict natural gas prices for today and would await the figures to see how prices would move.
The US Dollar Index drops to 96 as the Chinese Yuan devaluation settles: As the market grasp the situation with the Chinese Yuan, the US Dollar Index loses strengths. It would seem that with the Yuan depreciating, this could increase the trade deficit between US and China. As a result of this, the market seems to be wavering on the possibilities of a Sep’15 rate hike and increases the likelihood of Dec’15 rate hike instead. The US Dollar Index dropping to 96 supports energy markets which could be seen with the increasing Natural Gas and Crude Oil prices.
Prices maintain its support of $42.69 and $48.24 for WTI and Brent Sep’15. We expected support to come from US crude inventories; however, we got support from the decreasing US Dollar Index instead. Although we are seeing support being held, we remain skeptical over how long this support could last. Bearish momentum is still extremely strong and we remain worried about possibilities of prices reaching 2015 lows. With US crude inventories out of the way, this is one less reason for prices to display bullishness. We would think that for the rest of the week, prices would be subjected to adjustments from currency effects. For today, considering the strength of the bears, it is very possible to see current supports break and could see prices at 2015 lows face a round of testing as the bears gain strength for today again.
Spreads maintained wide above -$6. We were expecting inventories to decrease more. However, with only a 1.6m barrel drop, WTI-Brent spreads remain wide.
Prices increased by 3% just before inventory data. We attribute this to the weakening US dollar strength. Considering that prices are already at above $2.9, this really limits much upside potential for prices even in the event where inventories turn out weaker than expected. This would likely allow prices to reach up to $3. (Read Report)
Source : Phillip Futures Pte Ltd