Phillip Futures Energy Daily Outlook - Volatile crude oil prices ahead with 2 major events happening back to back; US Crude Oil Inventories and FOMC meeting.

U.S. Federal Reserve Chair Janet Yellen speaks at a news conference following the two-day Federal Open Market Committee meeting in Washington March 18, 2015. REUTERS/Joshua Roberts
Fundamental and Technical Analysis
FOMC meeting will conclude tomorrow morning, 2am (Singapore Time): The FOMC meeting began and will end tomorrow. Although anticipations of a rate hike are very weak, the market does anticipate some hint of whether interest rate could hike in December. This means that the key to this FOMC meeting would be how the Federal Reserve is viewing the mixed economic data that was released. If they start to downgrade their view of the US economy, it would very likely crush any hopes of a rate hike in Dec’15. This would likely also mean that the US Dollar Index would unlikely be staying this strong.

EIA US crude oil inventories would be released at 10.30pm (Singapore Time): Last week’s inventories change was largely bearish as inventories increased by over 8m barrels. This reflected the low refinery utilization that the US is experiencing and this should continue. Therefore, we expect another increase in inventories this week. This could result in a slight dip in prices if inventory does continue strong. However, we again focus on US crude oil production which we believe would be the way out of this whole supply glut. Therefore, would think that US oil production dropping below 9m barrels/day would likely be significant.

Market Summary

Crude Oil:
Prices continues its slow descent downwards, dropping by about 1%. This drop was likely due to the US Dollar Index maintaining its strength and also anticipations of higher US crude oil inventories. This explains the widening spreads between WTI and Brent as well, which is pricing in the oversupply within the US. In fact, fears that US could be selling off their Strategic Petroleum Reserve could be adding to this widening of spreads. For today, we believe that prices would volatile; reacting to both the US crude oil inventories and the US interest rate decision. This means that although prices could test immediate support of $42.57 and $46.57 for WTI and Brent Dec’15 again, we do not expect drops to continue. This is because we expect a weak US crude oil production to help give some strength to prices. In addition to this, we lean towards the US Federal Reserve not suggesting that a rate hike will happen in Dec’15. Thus, result in a weakening USD which should support oil prices. This should result in prices moving up above $44.15 and $47.46 by the end of the week.

Natural Gas:
Prices grew volatile after the huge drop below $2.5. The market struggles to find a new equilibrium after US natural gas inventories grew strong. To make matters worse, a warmer winter is downplaying the possibility of a shortage during winter which explains the low prices. We would think that prices should be reacting to how US natural gas inventories would be turning out. If inventories exceed the 2012 level, we would think that prices could even drop further towards $2. (Read Report)

Source : Phillip Futures Pte Ltd