Fundamental and Technical Analysis
Huge increase in US crude oil inventories has caused inventories to hit a new historical high. To make matters worse, US crude production continues stable, rather than decline: A sudden increase in inventories shook the market. This was mainly a result of a drop in US refinery capacity which was increasing steadily until last week. This has caused inventories to move up by 4.8m barrels, and hence a drop in oil prices. US crude production shows no signs of faltering despite the low crude oil prices. We continue to wait patiently for production to drop; however, it is taking painfully long. Low oil prices do not seem to have hurt US producers enough as production is kept high at 9.18m barrels/day.
US Federal Reserve finally raised interest rates by 0.25%. The US Dollar Index moved up above 98.5 even though this has been widely anticipated: We would have thought that with the highly anticipated rate hike, the market would have priced this in. It would have been expected that if interest rates increased by 0.5%, however, it was rather unexpected for the US Dollar Index to have shot up even with a 0.25% increase. Nonetheless, this increase in the US Dollar Index is one of the reasons why oil prices have dropped again yesterday.
Prices collapsed by about 4% again and this happened in 2 phases. The initial phase came about after US crude inventories increased by 4.8m barrels. Such increments are mainly seen during refinery maintenance season; however, with that season over, this is a huge increase which sparked a sell off. The market was not given a breather as shortly after US inventory data, the Federal Reserve announced that interest rates would increase. Another round of sell off happened as the USD began to strengthen, hence, explaining the 4% drop yesterday. For today, we would think that oil prices should be recovering from yesterday. We expect supports for both WTI and Brent Feb’16 to be at $36.77 and $37.20 and should hold for today and for the rest of the week.
Spreads narrowed a huge deal for both Feb and Mar contracts likely to have come from the possible lifting of the US oil export ban. Although we highly doubt that the ban would be lifted so readily, the market seems to be getting ready for it by shrinking the difference between WTI and Brent. If the ban is lifted, we could easily see WTI exceed the price of Brent by a few dollars; however, if this bill to lift the oil export ban gets a veto from the US president, spreads should move towards -$2.
Prices are being hammered with the warmer US winter and excess supply. With today’s US natural gas inventories scheduled to be released, prices would definitely be poised to move again. We expect an upwards move to come if inventories decrease by 156B ft3. (Read Report)
Source : Phillip Futures Pte Ltd