2nd november 2019 - jiffycontinuous mixed to bearish impact on the indian crude prices as well....

2nd November 2019

Fundamental Outlook Crude Oil: Looking forward for the coming month, we are expecting global crude prices to trade mixed to bearish with Saudi Arabia and the OPEC member countries have witnessed higher crude production for the month of October as compared to the September month. In addition, Chinese economic data over the last month is still not favorable for a pullback in its economic growth which is forecasted to keep the oil prices on the lower side. Along with oil, China faces problems in maintaining the imports of Natural Gas which has added negative sentiment in the global markets. Moreover, oil prices could see slump over the month ahead as US economic data has not shown any major progress including the recent non farm employment rate which is seen to be declining on a monthly basis. Catastrophic oil spill has been witnessed in Brazil which has brought tensions in the South American regions. However, the Brazilian police raided the office of a Greek company as they investigate an oil tanker carrying heavy Venezuelan crude that was allegedly spilled at sea, tarring thousands of kilometers of Brazil’s coastline over the past two months. Hopes of positive trade deal between US and China could revive the global oil prices, however, fears of continued recession in rest of the world with Chinese economic data not showing any major progress could keep the global crude prices in the weaker zone.

In the Indian scenario, earlier mentioned geopolitical factors/global events are expected to have an continuous mixed to bearish impact on the Indian Crude prices as well. Recently, Indian Prime Minister Narendra Modi had visited the delegates of Saudi Arabia to build up trade teas between India-Saudi Arabia for clean and efficient oil fuel in India. Moreover, India is also providing Saudi Arabia for an alternative export destination for its oil. In conclusion, we expect mixed to bearish trend in MCX Crude prices for the coming month.

For the month of November, Brent crude oil prices are expected to trade in the range of $58.28/bbl to $62.34/bbl and on the domestic front, prices are estimated in the range of Rs.3693/bbl to Rs.4050/bbl.

Natural Gas: Looking forward for the coming month, we are expecting global Natural gas prices to trade

bullish owing to expectancy of lower than normal temperatures in the United States which is more likely to keep the demand for Natural gas on the upper side. Moreover, November month is usual time for beginning of the winter season to arise in the United States which is forecasted to support prices. At domestic level, natural gas prices could witness uptrend as the fertilizer demand is forecasted to continue for the coming month as well as sowing of rabi crops are likely to begin till the end of year 2019. In conclusion, we expect bullish trend to be witnessed in NYMEX and MCX Natural Gas Futures for the month ahead.

For the current month, Natural gas prices in the international market are expected to trade in the range of $2.187/mmbtu to $2.908/mmbtu and on the domestic bourses are estimated in the range of Rs.175.5/mmbtu to Rs.239/mmbtu.

Crude Prices have gained slightly in the WTI exchange amid rise in export demand from United States after reduced exports witnessed in the middle east. However, Brent Crude and MCX Crude prices witnessed downtrend amid concerns of slowdown in the global economies and Indian economy respectively. Though the US-China trade talks has been positive so far, however, it has been unable to support oil prices as China still doubts for no long term deal and the location for the next meeting between US and China is not confirmed yet. Looking forward for the coming month, we are expecting global crude prices to trade mixed to bearish with Saudi Arabia and the OPEC member countries have witnessed higher crude production for the month of October as compared to the September month. In addition, Chinese economic data over the last month is still not favorable for a pullback in its economic growth which is forecasted to keep the oil prices on the lower side. Along with oil, China faces problems in maintaining the imports of Natural Gas which has added negative sentiment in the global markets. Moreover, oil prices could see slump over the month ahead as US economic data has not shown any major progress including the recent non farm employment rate which is seen to be declining on a monthly basis.

Catastrophic oil spill has been witnessed in Brazil which has brought tensions in the South American regions. However, the Brazilian police raided the office of a Greek company as they investigate an oil tanker carrying heavy Venezuelan crude that was allegedly spilled at sea, tarring thousands of kilometers of Brazil’s coastline over the past two months. Elsewhere, Venezuela’s oil production has been paralyzed as electricity crisis has worsened. Significant power disruptions to the power supply for the capital Caracas, major cities and oil processing sites has been witnessed in the last couple of months. Venezuela is unlikely to restore sustainable power supply any time soon, because it lacks money for spare parts and skilled personnel to do the repairs. Technicians have left state power firm Corpoelec and the country’s power system is now in the hands of the military, based on global experts. They further added that the system cannot recover fully without investments and skilled labour from foreign entities, something that appears unlikely under the current economic and political environment.

In the case of United States, EIA weekly report ending 25th October has reported Crude Oil Refinery Inputs of 15,739 thousand barrels, which has fallen on a yearly basis by 3.51% compared to previous year’s production of 16,310 thousand barrels during the same period. Correspondingly, net imports has reported at 3370 thousand metric barrels, lower by 30.64% compared to previous year’s imports of 4859 thousand barrels. Lower refinery production on a yearly basis decreased imports in the United States and is estimated to limit major downtrend in prices. Exports has reported at 3327 thousand barrels for week ending at 25th October, higher by 33.88% compared to 2892 thousand barrels of Oct’18.

0.20%

-0.90%

-0.70%

-1.00%

-0.80%

-0.60%

-0.40%

-0.20%

0.00%

0.20%

0.40%

Nymex Crude Oil($/bbl)

Brent Crude Oil($/bbl)

MCX Crude Oil(Rs./bbl)

Crude Oil Performance in Oct'19 (%)

Source: Bloomberg & Choice Research

The above chart of NYMEX-Brent futures spread reflects the global demand supply situation. Currently, the spread has narrowed from -$6.0 to -$6.5 in Sept’19 to -$5.5 to -$6.0 bbl range during the previous month. Easing trade tensions of US and China till October has narrowed the gap between the global oil prices. Moreover, supply cuts hopes by OPEC member countries including Russia has led to supportive movement in oil prices. Fall in US Crude inventories has also led to greater upside movement in WTI Crude Futures. We are expecting spread to further narrow to the range of -$3.0 bbl to -$4.0 bbl as the market seems hopeful for the deal completion between US and China.

The above chart showcases that US Crude Oil inventories which has reported at 438,853 thousand barrels till 25thOct’19, lower by 3.10% compared to previous month’s inventories of 436,545 thousand barrels. However, it is 3% above the five year average range for this time of the year.

Total motor gasoline inventories has decreased by 9,919 thousand barrels on a monthly basis and reported at 220,057 thousand barrels. Moreover, it is lower by 2.70% compared to previous year’s inventories of 226,169 thousand barrels. Finished gasoline inventories remained unchanged while blending components inventories decreased during last week.

Distillate fuel inventories has decreased by 11,513 thousand barrels last month and reported at 119,754 thousand barrels compared to previous month. But then it is at the lower half of inventories reported on a year which is likely to keep the prices supported. Similarly, the Propane/propylene inventories increased by 16.8 million barrels from last year to 99.8 million barrels, and are 32.15% above the five year average range.

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560000Weekly US Crude Oil Inventories


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Weekly US Gasoline Inventories


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Weekly US Distillate Inventories


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-5

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NYMEX-Brent Spread


As United States is currently witnessing a overall rise in the above crude inventories, downtrend in WTI crude prices is estimated to continue during the coming weeks. However, fears looming across the global markets regarding supply tightness by the OPEC member countries to extend it till the end of year 2019 could support prices from the lower levels. The only fear that still prevails in the global markets is the scenario of recession that may arise in case there is no improvements in the trade talks. US president Donald Trump has said that he would want the trade deal to be completed by mid November. Currently, global markets are holding on in positive zone even though both the countries have not fixed a particular location for Trump-Xi meeting for the deal discussions. Elsewhere, though the total OPEC production has risen for the month of October from 28320 thousand barrels per day to 29590 thousand barrels, however, OPEC member counties along with Russia may continue with the supply cuts plans in the global markets in their upcoming meeting to support the prices from major downtrend. Hopes of positive trade deal between US and China could revive the global oil prices, however, fears of continued recession in rest of the world with Chinese economic data not showing any major progress could keep the global crude prices in the weaker zone.

In the Indian scenario, earlier mentioned geopolitical factors/global events are expected to have an continuous mixed to bearish impact on the Indian Crude prices as well. Recently, Indian Prime Minister Narendra Modi had visited the delegates of Saudi Arabia to build up trade teas between India-Saudi Arabia for clean and efficient oil fuel in India. Moreover, India is also providing Saudi Arabia for an alternative export destination for its oil. In conclusion, we expect mixed to bearish trend in MCX Crude prices for the coming month.

Nymex & MCX Natural gas prices traded higher by 12.88% and 12.79% respectively during the month of October. Extreme temperatures witnessed in United States during the Autumn season led to higher usage of natural in various sectors such as power, residential and commercial sectors. Domestic prices rose due to higher demand in the power sectors and fertilizers for kharif crop harvesting.

Looking forward for the coming month, we are expecting global Natural gas prices to trade bullish owing to expectancy of lower than normal temperatures in the United States which is more likely to keep the demand for Natural gas on the upper side. Moreover, November is usual time for beginning of the winter season to arise in the United States which is forecasted to support prices. As per EIA weekly report ending on 28th August, the total supply of natural gas has been reported at 99.1 Bcf/d (billion cubic feet per day), higher by 7.87% compared to last year, while on a weekly basis it has increased by 0.1 Bcf/d. Likewise, dry natural gas has also been higher at 94.8 Bcf/d on a yearly basis, while average net imports from Canada increased by 4.87%. On the other hand, the demand has been reported at 84.3 Bcf/d which has been higher by 3.06% compared to previous year. Major incline in demand has been observed in the power sector by 15.71% to 30.2 Bcf/d from 26.1 Bcf/d of the previous year.

12.88%

12.79%

12.70%

12.75%

12.80%

12.85%

12.90%

Nymex Natural Gas ($/mmbtu) MCX Natural Gas (Rs/mmbtu)

Natural Gas Performance in Oct'19 (%)


By the end of November, we are estimating total demand to rise up to 90-92 Bcf/d levels which is expected to strengthen the prices in the futures market.

The above chart showcases that US Natural gas inventories had hit the peak level of 3247 billion cubic feet during Nov’18. Later, it has noticed a gradual decline and has reported at 1107 billion cubic feet by the end of Mar’19. This is due to overall higher usage of natural gas in the United States during the peak winter season. In the United States, the natural gas demand for heaters is usually higher compared to air conditioners based on its temperatures, climate conditions and its geographical location. Inventories in last month has risen by 11.39% to 3695 billion cubic feet till 25th October in United States, due to autumn where the usage is comparatively lower. Though the natural gas inventories are rising on a weekly basis, expectancy of lower temperatures with upcoming winter season is forecasted to keep the prices of Natural Gas supported during the coming month. At domestic level, natural gas prices could witness uptrend as the fertilizer demand is forecasted to continue for the coming month as well as sowing of rabi crops are likely to begin till the end of year 2019. In conclusion, we expect bullish trend to be witnessed in NYMEX and MCX Natural Gas Futures for the month ahead.

US CPC (Climate Prediction Center) survey for next one month showcases that warmer temperatures are expected in the cover the whole of United States with higher temperatures expected to be witnessed in the south western regions and northern Alaska regions. This is expected to increase the demand for power sectors. Overall temperatures are likely to be 40-60% above averages making a net higher to normal temperatures.

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US Natural Gas Inventories


SEBI Certified – Research Analyst www.choiceindia.com

Technical Outlook

MCX Crude Oil

On the daily chart, MCX Crude Oil price has retreated from 38.2% “Retracement Level” and upper “Bollinger Band” formation. Moreover, price has shifted below 50*200 days Simple Moving Averages, which indicates downwards move for the near term. Furthermore, the price has also traded below “Ichimoku Cloud”, which suggests continued bearishness in the counter. Additionally, a momentum indicator RSI (14) and MACD have shown negative crossover on the daily chart. So based on the above technical analysis, we expect a bearish move in MCX Crude Oil (Nov) Futures for the month ahead. On the higher end, the price may move towards Rs.4050, while on the lower end, it may find support around Rs.3693 levels.

SEBI Certified – Research Analyst www.choiceindia.com

Technical Outlook

MCX Natural Gas

On a weekly chart the price has taken the support from the “Rising Trendline”, which signifies bullish strength and capped the prior down trend in the counter. Also, the price has shown an upside breakout from the upper “Bollinger Band”, which adds positive strength for near term. On the daily chart, the price has been ascending from last three trading session. Furthermore, the price has shifted above the 50*200 days Simple Moving Averages, which is another indication for bullish trend continuation. Furthermore, the price has shifted above the 23.6% Retracement Levels of Rs.183.30 of the prior uptrend of the counter. Similarly, the price has shifted above Parabolic Sar, which is another confirmation of the trend continuation. Additionally, Momentum indicator RSI (14) and MACD have been moving upside with positive crossover, which adds positive support in the counter. So based on the above technical analysis, we expect a bearish move in MCX Natural Gas (Nov) Futures for the month ahead. On the higher end, the price may move towards Rs.239, while on the lower end, it may find support around Rs.175.5 levels.

2nd november 2019 - jiffycontinuous mixed to bearish impact on the indian crude prices as well....

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