Fundamental and Technical Analysis
US natural gas inventories increases again by 15B ft3, causing inventories to reach a new high of 4,000B ft3: US natural gas inventories are slowing down on its build up as we approach winter. This has caused inventories to continue breaking new highs. With winter only just starting, inventories should remain constant next week. If winter turns out as warm as expected, we expect inventories to follow the trend of 2012 very closely and would likely remain above it. This also means that inventories should remain high.
US crude oil inventories released the day before came out much lower than expected. Both low net imports as well as an increasing refinery capacity is likely the leading cause of this: Compared to previous weeks, the increase in inventories can be considered minute. With only a 252k barrel increase, this helps keep inventories from climbing higher. This should be a result of lower net crude imports which dropped by 409k barrels/day and refinery utilization which increased by 0.8%. It would seem that refinery maintenance season is about to come to an end and this would also mean that inventories would unlikely be building up much further. US crude oil production is also maintaining stable at 9.18m barrels/day which is a good sign for prices in the longer run.
Bearish momentum weakened as US crude oil inventories failed to move higher. Although this should normally cause prices to rally, it would seem that both oil bears and bulls are wary of moving markets in either direction. This is likely the cause of some uncertainty coming from possible lift of the Iranian sanctions and the Dec’15 OPEC meeting. Prices are currently forming a descending triangle pattern which suggests possible drops in prices in the near term. The support for this pattern is at $41.24 and $43.37 for WTI and Brent Jan’16. If this support breaks, WTI and Brent Jan’16 could easily test next support at $40.81 and $42. However, based on fundamentals, we find it extremely unlikely for prices to move lower. We continue to believe that there is limited downside for crude oil prices and would think that prices would find support at the next level, if current level breaks.
Prices broke various levels of support after inventories inched upwards. That was rather unexpected as inventories only increased slightly. In fact, the increase was much lower than expected and thus, should not have warranted this kind of bearish correction. As a result, we believe that Natural Gas Jan’16 would be undergoing correction for the rest of the week and should result in retracements towards $2.443 or $2.473. Even if prices move lower, we highly doubt that it would break the previous low of $2.355. (Read Report)