Fundamental and Technical Analysis
China trade balance moves upwards with higher than expected exports but lower than expected imports: A strong surplus in trade for China would certainly be a good sign for the economy. However, by looking at imports, this could mean a lower demand of commodities. China is one of the biggest consumers of commodities and a drop in imports would directly affect the demand. Although most of this 17.7% drop in value of Chinese imports could have come from low commodity prices, it is still worrying that Chinese import demand could be shrinking. This worry should cause some reservations to further price increases and thus, suggest some capped upside for today.
OPEC Oct’15 monthly report shows stagnant OPEC crude oil supply: Total crude oil production for Sep’15 shows a 109.2k barrel/day increase compared to Aug’15. Although this could be taken as a worrying sign, compared to Jul’15, we are not exactly seeing much increase in production. Therefore, would think that OPEC production is keeping stable rather than moving upwards. On a slightly more worrying note, OPEC is decreasing its global oil demand forecast which could suggest a weak long term play.
Price movement yesterday clearly shows the volatility in the oil markets at the moment. This drop has brought oil back down to the range that oil was trading at for the most of Sep’15. We believe this drop was caused by a split view in the Federal Reserve’s rate hike timing. With oil increasing on a weak USD, this could suggest that the USD will strengthen again, leading to an eventual wipe in gains. On top of this, OPEC monthly report is showing a stable supply despite prolonged oil prices. This is likely causing the market to price in for a longer oversupply, thus, lower prices. For today, with Chinese data still displaying some weakness for commodity demand, we would think that prices should not be increasing by much. Rather some resistance should be faced at $48.03 and $51.11 for WTI and Brent Dec’15. Even if this resistance breaks, we believe that prices should not be moving that much higher. We continue to be wary of the return of Iranian oil and thus, in the longer run, would think that it will still be bearish for oil prices this year.
Prices continue to move upwards despite worries that the US Dollar Index could be gaining strength. We believe that natural gas prices have a capped downside after it hit a low of $2.6 for the Dec’15 contract. With this bullish momentum forming and winter just around the corner, we expect prices to continue to move up for today to $2.772. Prices would likely stay here till inventory data is released later in the week. However, with the warmer fall, we remain wary that inventories could continue to build up, causing another drop in natural gas prices. (Read Report)
Source : Phillip Futures Pte Ltd