Fundamental and Technical Analysis
US Durable Goods Orders turned out much stronger than expected, allowing the US outlook to grow strong: Overall, we are still seeing a stronger outlook for the US economy with US Durable Goods Orders tipping the scales in favour of the bulls. This has allowed the US Dollar Index to inch towards 100, very near to the previous high of 100.39. This certainly favours a rate hike for the Dec’15 FOMC which could lead the USD to strengthen further in the weeks to come.
US crude oil and natural gas inventories both increased, but only slightly; markets seemed to have breathed a sigh of relief: US crude oil inventory increased by 0.960m barrels which was far lower than previous weeks where inventories increased in the millions. We expect inventories to continue to remain low with strong US refinery utilization which was at 92%. US crude production, on the other hand, seems to be continuing its decline. This will be ideal for prices in the longer run and if it continues, we should be seeing global oversupply easing. US natural gas inched up slightly by 9B ft3. We initially expected to see drops to natural gas inventories, however, seem to be too soon. Based on historical trends, inventories should start to drop already and until it does, prices are going to stay low.
Prices held strong yesterday, replenishing any drops it had received. The drops in prices started with European hours and continued until after US Durable Goods Orders was released. We believe that the increasing USD strength was the cause of the intraday drop, however, was corrected after US crude oil inventories increased only slightly. Further support would be coming from decreasing US crude production which has resumed its drop after weeks of stability. This allowed prices to move back up and test resistance of $43.49 and $46.49 for WTI and Brent Jan’16. We had initially expected this resistance to break, however, because US crude inventories increased, there was not enough bullish momentum. This leaves prices slightly below resistance and without much expected news left for the week, it will be increasingly difficult for prices to move higher.
Anticipations of drops in US natural gas inventories likely played a huge part in why prices turned out lower than expected. We expected a drop in inventories which would allow prices to move higher. However, with increasing inventories, we postpone this anticipation to next week. For today and the rest of the week, prices would likely be maintaining nearer towards $2.228. We do not expect prices to move much higher without drops to US natural gas inventories and thus, could even see some drops to prices today. (Read Report)
Source : Phillip Futures Pte Ltd