Phillip Futures Energy Daily Outlook - Weak Chinese economic data puts a scare on prices; drops should not persist for today.

Federal Reserve Chairman Janet Yellen.
Picture Credits : ibtimes.com
Fundamental and Technical Analysis
US Dollar Index inches upwards towards 95 yesterday and more movement could come from Federal Reserve Chairman Yellen’s speech tonight at 11pm (Singapore Time): The general sentiment at the moment seems to inch towards a rate hike happening only when economic data is showing stronger figures. One of the only strong figures we have seen so far was last week’s Initial Jobless Claims which prevented the US Dollar Index from falling further. With Janet Yellen scheduled for a speech tonight, the market would likely receive hints on how the market is performing from the Fed Chairman’s view. This could prompt reactions based on that which could shift the USD strength. Energy prices may grow sensitive to the US Dollar Index movements in the midst of unchanging fundamentals today, therefore, would keep a close eye on the US Dollar Index.

Market Summary

Crude Oil:
Prices dropped by above 3% yesterday, moving towards the lower bound of our expected range. We believe that this drop is the reaction towards weak Chinese data which was released yesterday. Added downward pressure was likely a result of the slight strengthening USD which exacerbated the fall in prices. We find it surprising that the market would react this much to weak Chinese economic data. We would have expected China’s bleak economic outlook to already be priced in. Therefore, would think that the drops should be contained. We continue to maintain our expectation that oil prices would continue range bound for the rest of the week. WTI Dec’15 should trade within $48.03 and $44.62, while Brent Dec’15 at $51.11 and $47.86. This should last till the end of the week where preliminary manufacturing PMI could cause more volatility to oil prices. However, for today, we believe that prices should not have enough momentum to break this range.

WTI-Brent Spread:
Spreads narrowed a great deal after Brent Dec’15 dropped 0.7% more than WTI Dec’15. This caused the WTI-Brent spread to reach a 20d maximum. The range that WTI-Brent spread trades at is relatively narrow at the moment and would think that spreads are maintaining this as the market fears the return of Iranian oil. Iranian oil is expected to return by the end of the year and could cause Brent to be relatively oversupplied compared to WTI which narrows the Brent premium.

Natural Gas:
Prices became less volatile after last week’s disappointingly robust US natural gas inventory. Although, low natural gas prices should be expected with robust US natural gas inventories, we do not expect further drops to natural gas prices with the US winter just around the corner. We believe that support of $2.607 would be held and thus, could suggest possibly entry at that support level. (Read Report)


Source : Phillip Futures Pte Ltd

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