Monday, February 03, 2014
Market Commentary
The energy complex had a pretty mixed week as crude oil gained
marginally but natural gas declined sharply from its highs on
moderate weather forecasts for January. Better U.S. GDP data
coupled with heating related demand for distillates kept crude oil
supported at lower levels even as Chinese data proved to be a
dampener. Evidently, even as crude stockpiles climbed, distillate
inventories continued their decline last week. Natural gas prices
fizzled much in line with our expectations and temperature
forecast for February don’t seem to be too supportive. Overall
crude oil prices gained 0.53% on the week while Natural gas fell
almost 7%.
Context
Crude oil prices have been relatively choppy off late as growth
concerns in emerging markets on one hand and relatively good
growth in the U.S. drive prices either side. Emerging market
currencies have been battered owing to the taper which makes
crude oil much more expensive in domestic currency terms for
emerging economies. Combined with that, Chinese data has been
soft with manufacturing PMI falling to a six month low.
On the inventory front, API data suggested that crude inventories
jumped by 2.3 million barrels even as distillate inventories
continue to drop. Distillate inventories fell by 1.8 million barrels,
slightly lower than expected. Later EIA data showed that crude oil
inventories climbed by 6.4 million barrels against an expected rise
of 2.25 million. Overall, distillates seem to be the only driver for
crude oil as distillate demand increased 20% to 4.52 million
barrels a day, the highest level in more than 5 years. The wave of
d
cold temperatures last month has supported demand for heating
oil, diesel and propane and effectively underpinned crude oil
prices.
Context
Some support to prices came as OPEC crude production dropped
to the lowest level in more than two years in January largely due
to drop in Angolan output. OPEC output fell by 151,000 barrels to
Exchange
Contract
Open
Close
1 Week Chg
%change
OI
OI change
Pivot
Resistance
Support
Crude Oil
MCX
NYMEX-WTI
Mar
Mar
6105
96.9
6169
97.41
64
0.51
1.05%
0.53%
10335
314926
922
-27629
6137
97.07
6231
98.93
6075
95.55
ICE-Brent
Mar
107.91
106.4
-1.51
-1.40%
203213
-28303
107.03
107.77
105.67
Exchange
Contract
Open
Close
1 Week Chg
%change
OI
OI change
Pivot
Resistance
Support
Natural Gas
MCX
NYMEX-NG
Feb
Feb
321.4
4.958
302.6
4.44
-18.8
-0.52
-5.85%
-10.53%
11566
272469
-1345
236737
313.6
5.11
332.8
5.50
283.4
4.50
USD/INR
NSE
Jan
62.85
63.125
0.275
0.44%
525277
97885
62.87
63.63
62.37
Front Month Calendar Spread
Exchange
MCX
NYMEX
1st month
-56
-0.95
2nd month
-18
-1.73
WTI-Brent spread
1st month
2nd month
8.99
9.31
1
Please refer to the disclaimer at the end of the report.
 Motilal Oswal Financial Services
Energy Weekly
an average 29.888 million barrels a day from 30.039 million in
December. Angola’s production fell by 258,000 barrels to 1.48
million this month, Saudi cut output by 100,000 barrels while Libyan
utput
output rose by 260,000 barrels a day to 470,000 in January. Also,
Iraq’s crude exports declined to 2.22 mbpd in January from 2.34
mbpd in December owing to attacks on a pipeline. Therefore, even
as the global supply picture is pretty comfortable we saw crude oil
cture
edge up from lower levels in the past few days.
Economic data from the U.S. was broadly uneven during the week
apart from the GDP which expanded in line with expectations. In
regional manufacturing data, the Dallas Fed's manufacturing activity
las
edged up to 3.8, Chicago PMI climbed to 59.6, better than
expectations but the Richmond Fed manufacturing index declined
slightly to 12. December durable goods orders plunged, falling
4.3% compared to 1.8% rise expected.
tural
Natural gas was a big mover last week after climbing to a record
high and subsequently declining sharply. Inventories decreased to
2,193 Bcf last week and are 22.5% below year
year-ago levels and
16.6% below the 5-year average. January was a very cold month
year
and total consumption rose 17.6% in the latest week. Later prices
otal
declined as forecast for February are relatively moderate and if
moderate weather persists, we could see downtrend in prices
continuing
Outlook
US Crude Oil Production
8500
8000
7500
7000
6500
6000
5500
5000
Source: Reuters
US Crude Oil Stocks
42000000
40000000
38000000
36000000
34000000
32000000
30000000
Source: Reuters
Next week in pretty heavy on economic data and man
manufacturing
PMI’s from China to U.S. will drive crude oil prices. Chinese data
has been soft and we believe crude oil prices are due for a drop if
U.S. data disappoints. Nonfarm payrolls are expected to have
increased by 184,000 after rising only 74,000 in December. The
unemployment rate is seen steady at 6.7%.
On the price front $98.30-98.60 is a strong resistance zone we
98.60
could see prices dropping towards $95.50 in the near term. For
Natural gas, $4.95-4.99 will be a strong resistance and
4.99
temperatures indeed moderate we could see a fall towards $4.70.
d
Crude oil
We remain y bearish on Crude for the week and if 6100 breaks
convincingly, we recommend selling crude oil for targets of
5990/5970 and stop loss above 6175.
2
Please refer to the disclaimer at the end of the report.
fer
 Motilal Oswal Financial Services
Energy Weekly
Natural gas
On the MCX, We advised caution on longs last week and we saw
prices correcting sharply after that. For natural gas, a sustained
break below 300 could see prices falling towards 272
272-278 level.
Overall, 340 looks to be the top.
For any details contact:
Commodities Advisory Desk - +91 22 3958 3600
commoditiesresearch@motilaloswal.com
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tatement
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3
Please refer to the disclaimer at the end of the report.
fer