Fundamental and Technical Analysis
US crude oil inventories would be released later tonight at 11.30pm (Singapore Time): Inventory data is likely going to be the most important set of news that we would be seeing this week. We expect some uncertainty for this week’s data as the previous 2 weeks was showing high levels of volatility. We are of the belief that there will be a drop in US crude oil inventories. This is because refinery utilization is on the low side and would think that it should be increasing. Although the crude export ban has been lifted, the week of this data is backdated to when the ban has just been lifted. Therefore, it could be premature to expect net exports out of the US to increase. However, with time to come, we should be seeing this push inventories down. On the side of production, we continue to wait for US production to fall. However, judging from how it has been stabilizing, we can only remain hopeful of further drops. Most likely, production would disappoint us and remain above 9.1m barrels/day.
Both WTI and Brent moved up by about 3% yesterday. Prices are displaying range bound movements during this festive season as it fluctuates between $36-38. As expected, we expect the lower volumes to imply that primary support and resistance would not be broken. There is likely not enough force in the market to make such shifts. Today, however, this could change as US inventory data is scheduled to be released. We believe that inventories have more chances to decrease than to increase and thus, would think that prices should be moving upwards. This should allow prices to end the year on a slightly better note. WTI and Brent Feb’16 should be facing immediate support at $37.14 but ultimately, highly doubt that they could break $36.89 and $36.76 respectively, especially if US inventories drops.
Surprisingly, spreads for the front month starts to narrow towards $0 while the later month, Mar’16 started to widen more towards $1. This suggests that the market is expecting more US oil to be shipped in Mar’16 rather than Feb’16, hence, adjusting the spreads on later months. More movements to the spreads would likely happen depending on how US oil net exports play out. If it starts to increase this week, or the next, we highly expect even front month spreads to be widening nearer to $1. Later month spreads could easily break above $1.
Prices increased again by over 4%. The market remains extremely bullish with the colder US weather forecast. However, we would think the market could be getting slightly too bullish. Movements now are mainly anticipations of higher demand. However, ultimately, we would need to see inventories dropping towards 2012 levels to sustain this bull run. (Read Report)
Source : Phillip Futures Pte Ltd