Monday, February 17, 2014
Market Commentary
The energy complex continues to exhibit strength with both crude
oil and natural gas ending the week on a positive note. Although
natural gas rallied sharply yet again owing to a winter storm, the
gains in crude oil were quite limited as economic data was weak
and investors are still unsure about the sustainability of oil prices
above the $100 level. Yet, the recent upgrade in demand forecast
from the likes of IEA, OPEC and EIA will support crude oil prices
in the near term. Crude oil prices continue to trade choppy and
stuck near the $100 level for most part of last week. Natural gas
still has near term support on cold weather conditions and it
ended the week with almost 8% gains bringing its year to date
gain to 22%. Meanwhile crude oil gained marginally by 0.27% for
the week.
Exchange
Contract
Open
Close
1 Week Chg
%change
OI
OI change
Pivot
Resistance
Support
Crude Oil
MCX
NYMEX-WTI
Mar
Mar
6180
100.05
6198
100.4
18
0.35
0.29%
0.35%
9421
142655
-369
-116660
6211
100.30
6267
101.48
6143
99.21
ICE-Brent
Mar
109.75
109.07
-0.68
-0.62%
22082
-104763
108.89
109.93
108.03
Context
The crude oil market has been supported by a steep draw in
product inventories over the last few weeks and developments
this week further point to supply tightness in the near term. The
Energy Information Administration last week lowered its U.S.
crude oil production forecast for this year and next year due to
recent severe weather but said improving technology could boost
shale oil output over the next two years. In its latest monthly
short-term energy outlook, the EIA cut its 2014 crude oil
production forecast by 100,000 barrels per day to 8.4 million bpd
and by 100,000 bpd to 9.2 million bpd for 2015. It also raised its
2014 world oil demand growth forecast by 50,000 barrels per day
to 1.26 million bpd.
d
Later the IEA in its monthly report said that global oil demand
was surprisingly robust, partly due to OECD recovery and said
Context
oil supply has disappointed, helping drain inventories.
that global
The IEA also said that there was no evidence of a market glut
and raised its forecast for global oil demand growth in 2014 by
50,000 bpd to 1.3 million bpd. Also on the supply side, Libyan
Exchange
Contract
Open
Close
1 Week Chg
%change
OI
OI change
Pivot
Resistance
Support
Natural Gas
MCX
NYMEX-NG
Feb
Feb
299.8
4.45
324.4
4.70
24.6
0.25
8.21%
5.55%
12297
146003
1505
-80464
314.5
5.05
343.8
5.54
295.2
4.71
USD/INR
NSE
Feb
62.765
62.42
-0.345
-0.55%
116521
22062
62.61
62.83
62.20
Front Month Calendar Spread
Exchange
MCX
NYMEX
1st month
22
-0.07
2nd month
-9
-1.4
WTI-Brent spread
1st month
2nd month
8.67
8.33
1
Please refer to the disclaimer at the end of the report.
 Motilal Oswal Financial Services
Energy Weekly
supply remains volatile as output from the Sharara field slid to
200,000 barrels a day from 350,000 barrels after protesters shut a
pipeline to the Zawiya terminal.
On the inventory side, API data on Tuesday showed a further 2.5
million-barrel decline in crude stocks at Cushing even as total
barrel
inventories climbed. Distillates, including heating oil and diesel, fell
by 1.5 million barrels, while U.S. crude stockpiles rose by 2.1 million
barrels. In the EIA report later, U.S. crude oil inventories climbed
by 3.27 million barrels to 361.4 million and supplies of distillate fuel
decreased by 731,000 barrels to 113.1 million. Cushing inventories
have started to decline as the southern leg of Keystone XL pipeline
began shipments last month. The line was initially flowing at
288,000 barrels a day and will ramp up over the course of the year
toward the 700,000-barrel capacity. On the flip side, oil demand fell
barrel
for a second week, down 569,000 bpd to 18.5 million bpd and
production of crude oil increased 88,000 barrels a day to 8.13
million bpd.
On the demand side, Chinese demand continued its run of strength
as crude imports hit record high in January. Oil imports in January
rose by almost 12% year on year from a year earlier to a record
6.63 million bpd. Imports of refined oil products fell 3.8% from a
year ago to 3.76 million tonnes. Economic data from Europe was
slightly better with GDP growth. Euro zone GDP rose by 0.3% in the
third quarter, and 0.5% compared to year a and this was the first
ago
sign of annual growth since 2011. U.S. data was soft with Industrial
production declining 0.3% in January and Manufacturing output
falling by 0.8%.
On the natural gas front, inventories fell sharply by 237 bcf last
week and are currently at the lowest level since 2004 for this time
of the year as cold weather continues to increase heating demand
and deplete inventories. The inventory drop was 46% hig
higher than
the five-year average and the deficit to its five
year
five-year average
inventory levels widened to a record 27%. We believe that natural
gas will remain volatile with a slight upward bias in the near term
but prices could decline later on moderating weath forecasts.
weather
Outlook
The support to crude oil from economic data seems to be little but
nonetheless tight supplies could support prices in the near term.
Also, speculators raised their net long U.S. crude futures and
options by 26,882 contracts to 364,133 which suggest that the bias
in the market is still bullish. On the price front too, crude oil has
been sustaining well near the $100 level and if it sustains above
$100.75 we could see a rally towards $102.0
$102.0-102.5 levels. Strong
downside support is at $99.5 and only if it breaks that level we
.5
could see reversal in trend.
US Crude Oil Production
8500
8000
7500
7000
6500
Source: Reuters
US Crude Oil Production (in KBD)
Chinese Crude Oil Imports
30000000
25000000
20000000
15000000
10000000
Source: Reuters
2
Please refer to the disclaimer at the end of the report.
fer
 Motilal Oswal Financial Services
Energy Weekly
Crude oil
On the MCX, We believe 6270-6300 is a major resistance zone for
6300
crude oil and this zone can provide good selling opportunity in the
near term if it fails to cross yet again after many attempts
attempts.
However a breach above those levels could take price towards
prices
6350-6380 very quickly. On the downside 6060
6060-6040 remains a
key support to be broken for a sustained downside rally.
Natural gas
On the MCX, We believe sell on rallies to be the strategy going
forward. For natural gas, 338-342 zone looks to be a major
resistance and only a sustained close above the previous highs
would make the trend very bullish. Strong downside supports are
in the strong support at 312-320 regions.
For any details contact:
Commodities Advisory Desk - +91 22 3958 3600
commoditiesresearch@motilaloswal.com
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