Phillip Futures Energy Weekly Outlook - Geopolitical tensions fuel higher oil prices; weak USD helps as well due to the anticipation of rate hikes growing weaker.

Fundamental and Technical Analysis
Heightened conflicts in Syria ignite oil prices to move higher : With Russia joining the fray, we are starting to see the conflict in Syria intensifying. Although this could mean an early resolution to the conflict, in the meantime, this signals heightened conflict which sparks a rally in oil prices. This has allowed oil prices to find some bullish momentum which pushes prices up further.

The US dollar continues to weaken after bearish sentiments was cast onto the market; US Dollar Index remained low at below 95 : Oil prices were kept up after Federal Reserve Vice Chairman Stanley Fischer reiterated their stand on hiking rates only if the economy is ready for it. He mentioned that rate hikes was “an expectation, not a commitment” which would be putting off the idea that the Federal Reserve would be hiking rates based on the market’s expectations. Therefore, if we were to solely look at how the US economy is performing, it would seem that the rate hikes may not happen in the near. This has caused the USD to weaken to below 95 and supports USD-denoted energy prices as they remain high.

OPEC monthly report scheduled to be released today : Monthly updates on the oil demand and supply situation will be reported by OPEC today. Although we do not expect much change to the situation, a confirmation that OPEC supply is not increasing would be ideal. We continue to believe that the coming quarter would be more about supply than demand; hence eye OPEC report closely to see how supply is doing.

Market Summary

Crude Oil:
Prices increased by almost 10%, which was initially fueled by the declining US crude oil production. Bullish momentum was renewed after Russia joined in the fight against Syrian rebels towards the end of the week. Further bullishness was seen due to the weakening USD strength. All these amounted to a 10% increase in oil prices, in the midst of an oversupplied market. For the week ahead, we lean towards a increase in oil prices provided Syrian tensions continue to persist and the US dollar strength continues to remain weak. This should allow prices to break current resistance of $51.44 and $54.36 for WTI and Brent Dec’15.

Natural Gas:
Prices increased last week by 2%. We believe that natural gas prices may have reached a bottom already, and has started to inch up throughout the week. The weakening USD secured this increase as prices were able to maintain strong. We do not expect much increase in natural gas especially if inventories remain strong. Current prices levels should be faced with resistance at $2.542. If inventories turn out weak this week, we may see prices end higher than this resistance. However, if it remains robust, we highly doubt prices could maintain higher. (Read Report)

Source : Phillip Securities Research

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