Fundamental and Technical Analysis
US crude oil inventories increased by more than 8m barrels and production maintains the same at 9.096m barrels/day. US natural gas inventories scheduled to be released tonight at 10.30pm (Singapore Time): US crude oil inventories increased again with refinery utilization remaining low at 86.4%. This should be expected to continue as refinery maintenance season is underway. We believe that the main focus of the market was US crude oil production. With that figure reluctantly moving below 9m barrels/day, the market grew wary. For US natural gas, we expect further increases to inventories, however, would think that if it exceeds 2012 inventory levels, prices could move way lower. Although we do not expect this to happen, it is a possibility because the US is experiencing a warmer fall which weighs down on natural gas consumption.
Surprise meeting from OPEC resulted in a not so surprising non-event: Apart from the occasional pep talk by oil ministers, the idea has always been kept the same – maintaining market share. We would think the main reason why the stance has not changed is because this strategy is seen to be working. This may not be reflected in prices but this is reflected in decreasing US crude oil production. If OPEC were to use similar strategies from the past, we could easily see their market share decline, without any longer term decrease in production. So, much like how some countries would try to burst an asset bubble, we view OPEC as doing the same for oil as they maintain their stance to keep prices low. Ultimately, we would think that they are doing this for the longer run.
Prices dropped by about 2% yesterday as a result of US EIA inventory data. Although initial drops before the data could have been a result of the more than 8m barrel increase, we believe what allowed prices to stay low should be due to robust US crude oil production. On the bright side, we are still seeing declines in rig counts and this should soon translate into further drops to US crude oil production. Therefore, we continue to maintain that prices should move range bound at $48.03 and $44.62 for WTI Dec’15 and $51.11 and $47.86 for Brent Dec’15.
Surprising movements from natural gas happened before inventory data. Prices took a plunge by 2.5% yesterday and reached a new low at $2.584 for Dec’15. This is likely a result of anticipations for natural gas inventories surpassing 2012 levels by this week. We would need to see an increase of more than 110B ft3 before 2012 levels are surpassed. With weak seasonal consumption in the US this year round, we would think that this could be a possibility and would expect this to bring Natural Gas Dec’15 below $2.584. On the flip side, if inventories fail to increase by 110B ft3 , prices should be moving upwards to $2.67. (Read Report)
Source : Phillip Futures Pte Ltd