Phillip Futures Energy Daily Outlook - Crack spreads are narrowing a great deal; If this continues, we may see 321 Crack spreads narrowing past the 5 year low.

Fundamental and Technical Analysis
Both EIA US natural gas and crude oil inventories scheduled to be released today at 10.30pm and 11pm respectively (Singapore Time): For both US oil and natural gas inventories, we do not expect much of a change to what we have been seeing. For crude oil, refinery capacity is expected to remain low, thus, likely to bump inventories up higher. US crude oil production would likely be the more interesting figure as we continue to eye drops in production to be the main driver for the easing of global oversupply. Last week’s production was worrying as the decline has slowed and if it continues this week, this may mean prolonged low oil price. US natural gas inventories should continue to remain strong. Considering the warmer temperature that the US is currently facing, this should likely mean that consumption for natural gas remains low. Hence, suggesting robust inventories for this week.

US retail sales disappoints, causing the USD strength to weaken: With the Federal Reserve back on their data-centric approach, every key data for the US would likely be a crucial one in gauging the timing of the rate hike. US retail sales (MoM) only grew by 0.1%, causing the US Dollar Index to test 94 as this would likely be pushing back the timing of a rate hike. This is giving support to oil prices which is likely causing it to stagnant in the midst of bearish pressures.

Market Summary

Crude Oil:
Prices traded in a very tight range yesterday. We expected prices to move based on US retail sales. This did not happen as US retail sales weakening was just enough to reverse the impact of the bearish pressure on oil prices. This resulted in prices remaining within the same range. For today, we believe that prices should be volatile due to US inventory data. Depending on whether US inventories change exceeds estimates, we may be seeing some drops to prices. However, should still expect WTI and Brent Dec’15 to trade within the range of $44.62 and $47.22 and $47.86 and $50.34 respectively.

321 Crack Spreads:
The crack spreads have narrowed near to levels we have seen 2 years ago. If this continues, we may be seeing spreads reaching to 5 year lows. This clearly shows the oversupply in the market which has spilled over even to refined products. On the side note, with the spreads narrowing to such an extent, we would that that this illustrates how low oil prices have become a problem even to downstream players.

Natural Gas:
Prices seem to have hit a plateau as it remains within $2.772 and $2.709. We expect prices to remain here until US natural gas inventory is released. As we expect inventories to remain robust, we do not expect prices to rally up. Therefore, expect prices to remain below $2.772. (Read Report)

Source : Phillip Futures Pte Ltd