66thth January 2020January 2020 · 2020. 2. 11. · At domestic level, natural gas prices could witness mixed to uptrend as the fertilizer demand is forecasted to continue for the

6th January 2020 6th January 2020

Fundamental Outlook Crude Oil: Looking forward for the coming month, we are expecting global crude prices to trade bullish with higher hopes of trade deal confirmation between US and China by mid January and expectation of positive results for the phase two trade deal. In addition, Chinese economic data over the last month is has shown improvements for a pullback in its economic growth which is forecasted to keep the oil prices on the higher side. Along with oil, China’s People’s bank is forecasted to cut rate by 50 basis in order to boost its economy. Moreover, oil prices could see support over the month ahead as US economic data has improved over the months including the recent non farm employment rate which is seen to be rising on a monthly basis with non farm employment steady at the lower levels. Tensions with Iran still continue as the impact of the sanctions weigh on the Oil exports to global buyers. Moreover, recent US Airstrikes on Baghdad has killed Senior Iranian and Iraqi military; which has further raised concerns that escalating Middle East tensions may disrupt global oil supplies. Elsewhere, Venezuela is quietly increasing its oil production and exports after the market diverted its attention on the US-China trade deal talks and further developments on the same. So far trade optimism has also benefited Venezuela; as it is fighting nation’s main scourge hyperinflation and to render their economy a bit more market based.

In the Indian scenario, earlier mentioned geopolitical factors/global events are expected to have an continuous bullish impact on the Indian Crude prices as well. Furthermore, hopes of income tax cuts in the upcoming budget by the central government is forecasted to improve the retail buying of crude. Also, corporate tax cuts earlier given by the above government is estimated to have a long term positive impact on various industries. In conclusion, we expect bullish 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 $60.30/bbl to $76.00/bbl and on the domestic front, prices are estimated in the range of Rs.4100/bbl to Rs.4977/bbl.

Natural Gas: Looking forward for the coming month, we are expecting global Natural gas prices to trade mixed to 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, January is usual time for peak winter season to arise in the United States which is forecasted to support prices. At domestic level, natural gas prices could witness mixed to uptrend as the fertilizer demand is forecasted to continue for the coming month as well as sowing of Rabi crops are likely to end by January 2020. In conclusion, we expect mixed to 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 $1.909/mmbtu to $2.377/mmbtu and on the domestic bourses are estimated in the range of Rs.131.8/mmbtu to Rs.194/mmbtu.

Energy Monthly

10.68%

5.72%

10.20%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Nymex Crude Oil($/bbl)

Brent Crude Oil($/bbl)

MCX Crude Oil(Rs./bbl)

Crude Oil Performance in Dec'19 (%)

Source: Bloomberg & Choice Research

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. Moreover, Brent Crude and MCX Crude prices witnessed uptrend amid further supply cuts by the OPEC member countries including the allies. Correspondingly, the US-China trade talks has been positive so far and higher hopes of trade deal to be signed by mid January had kept the prices supported during the last month; even though industrial demand for crude has not significantly risen amid global slowdown. Looking forward for the coming month, we are expecting global crude prices to trade bullish with higher hopes of trade deal confirmation between US and China by mid January and expectation of positive results for the phase two trade deal. In addition, Chinese economic data over the last month is has shown improvements for a pullback in its economic growth which is forecasted to keep the oil prices on the higher side. Along with oil, China’s People’s bank is forecasted to cut rate by 50 basis in order to boost its economy. Moreover, oil prices could see support over the month ahead as US economic data has improved over the months including the recent non farm employment rate which is seen to be rising on a monthly basis with non farm employment steady at the lower levels.

Tensions with Iran still continue as the impact of the sanctions weigh on the Oil exports to global buyers. Moreover, recent US Airstrikes on Baghdad has killed Senior Iranian and Iraqi military; which has further raised concerns that escalating Middle East tensions may disrupt global oil supplies. In addition, U.S. has also claimed responsibility over the recent for Baghdad attack . So far the number of people killed in the attack is unclear. America and Iran are already facing off over the Trump administration’s crippling economic campaign against Tehran and suspected Iranian reprisals. Additional U.S. forces were ordered to the region after the embassy attack. Elsewhere, Venezuela is quietly increasing its oil production and exports after the market diverted its attention on the US-China trade deal talks and further developments on the same. So far trade optimism has also benefited Venezuela; as it is fighting nation’s main scourge hyperinflation and to render their economy a bit more market based. Yet once again elections in Venezuela are around the corner and the fragile stability might be jeopardized again. In the case of United States, EIA weekly report ending 25th October has reported Crude Oil Refinery Inputs of 16,980 thousand barrels, which has fallen on a yearly basis by 2.40% compared to previous year’s production of 17,398 thousand barrels during the same period. Correspondingly, net imports has reported at 6809 thousand metric barrels, lower by 11.06% compared to previous year’s imports of 7656 thousand barrels. Higher refinery production on a yearly basis decreased imports in the United States and is estimated to cap major uptrend in prices. Exports has reported at 3397 thousand barrels for week ending at 25th October, higher by 14.41% compared to 2969 thousand barrels of Dec’18.

Energy Monthly

-15

-10

-5

0

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

De

c-1

8

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

De

c-1

9

NYMEX-Brent Spread

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 Nov’19 to -$5.5 to -$6.0 bbl range during the previous month. Trade Optimism between US and China has narrowed the gap between the global oil prices. Moreover, supply cuts by the 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.

360000

410000

460000

510000

560000Weekly US Crude Oil Inventories

Source: Bloomberg & Choice Research

The above chart showcases that US Crude Oil inventories which has reported at 441,359 thousand barrels till 20thDec’19, lower by 2.34% compared to previous month’s inventories of 451,952 thousand barrels. However, it is 2% above the five year average range for this time of the year.

200000

210000

220000

230000

240000

250000

260000

270000Weekly US Gasoline Inventories

Source: Bloomberg & Choice Research

Total motor gasoline inventories has increased by 13,282 thousand barrels on a monthly basis and reported at 239,260 thousand barrels. Moreover, it is higher by 2.64% compared to previous year’s inventories of 233,106 thousand barrels. Finished gasoline inventories remained unchanged while blending components inventories decreased during last week.

110000

120000

130000

140000

150000

160000

170000

180000

Weekly US Distillate Inventories

Source: Bloomberg & Choice Research

Distillate fuel inventories has decreased by 8538 thousand barrels last month and reported at 124,944 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 16.2 million barrels from last year to 72.2 million barrels, and are 10.0% above the five year average range.

Energy Monthly

As United States is currently witnessing a overall fall in the above crude inventories, uptrend in WTI crude prices is estimated to continue during the coming weeks. Moreover, supply fears looming across the global markets post the cuts by the OPEC member countries and its allies like Russian could support prices during the coming months. The only fear that still prevails in the global markets is the scenario of recession that may last longer than we think even though there trade optimism in the market. US president Donald Trump has said that he would want the trade deal to be signed by mid January. Currently, global markets are holding on in positive zone as US-China is simultaneously discussing on the phase two deal and global experts are hoping that the phase two deal to be completed by March 2020. So far there is no official confirmation on the same. Elsewhere, though the total OPEC production has been flat for the month of December from 29550 thousand barrels per day to 29640 thousand barrels, however, OPEC member counties along with Russia will continue with the supply cuts plans in the global markets until further discussions to support the prices from major downtrend. Saudi Arabia has seen similar production in the above month at 9830 thousand barrels, compared to 9870 thousand barrels. In the Indian scenario, earlier mentioned geopolitical factors/global events are expected to have an continuous bullish impact on the Indian Crude prices as well. Furthermore, hopes of income tax cuts in the upcoming budget by the central government is forecasted to improve the retail buying of crude. Also, corporate tax cuts earlier given by the above government is estimated to have a long term positive impact on various industries. In conclusion, we expect bullish trend in MCX Crude prices for the coming month.

-4.03%

-7.00% -8.00%

-6.00%

-4.00%

-2.00%

0.00%

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

Natural Gas Performance in Dec'19 (%)

Source: Bloomberg & Choice Research

Nymex & MCX Natural gas prices traded lower by 4.03% and 7.00% respectively during the month of December. Uneven weather conditions in United States with higher temperatures witnessed during the winter season led to lower usage of natural in various sectors such as power, residential and commercial sectors. Domestic prices also fell due to lower demand in the power sectors.

Looking forward for the coming month, we are expecting global Natural gas prices to trade mixed to 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, January is usual time for peak winter season to arise in the United States which is forecasted to support prices. As per EIA weekly report ending on 20th December, the total supply of natural gas has been reported at 100.6 Bcf/d (billion cubic feet per day), higher by 9.94% compared to last year, while on a weekly basis it has increased by 9.1 Bcf/d. Likewise, dry natural gas has also been higher at 95.8 Bcf/d on a yearly basis, while average net imports from Canada increased by 4.6 Bcf. On the other hand, the demand has been reported at 118 Bcf/d which has been higher by 13.46% compared to previous year. Major incline in demand has been observed in the power sector by 23.48% to 30.5 Bcf/d from 24.7 Bcf/d of the previous year.

Energy Monthly

By the end of January, we are estimating total demand to rise up to 110-112 Bcf/d levels which is expected to strengthen the prices in the futures market.

800

1,300

1,800

2,300

2,800

3,300

3,800

US Natural Gas Inventories

Source: Bloomberg & Choice Research

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 fallen by 11.39% to 3250 billion cubic feet till 22nd December in United States, due to winter where the usage is comparatively higher. Though the natural gas inventories are falling on a weekly basis, expectancy of mixed temperatures in the ongoing winter season is forecasted to keep the prices of Natural Gas mixed to bullish during the coming month. At domestic level, natural gas prices could witness mixed to uptrend as the fertilizer demand is forecasted to continue for the coming month as well as sowing of rabi crops are likely to end by January 2020. In conclusion, we expect mixed to 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 south eastern of United States with higher temperatures expected to be witnessed in the Florida regions. However, western United States and parts of Alaska are expected to witness cooler temperatures. This is expected to increase the demand for power sectors. The rest of United States are likely to witness near normal temperatures. Overall temperatures are likely to be 20-40% above averages making a net higher to normal temperatures.

Technical Outlook

MCX Crude Oil

On the Weekly chart, MCX Crude Oil price closed above the “78.60% Retracement Level” of the prior fall, which indicates that the downtrend has come to a halt. Moreover, the price has sustained above its “Ichimoku Cloud” which signals that the counter is in a bullish phase. Furthermore, Weekly 20EMA and 50EMA have witnessed a positive crossover, which suggests continued bullishness in the counter. Additionally, momentum indicator RSI (14) has breached above its 50 level which indicates control in the hands of the bulls. Also, momentum indicator MACD has shown a fresh positive crossover which signals positivity in the counter. So based on the above technical structure, we expect a bullish move in MCX Crude Oil (Dec) Futures for the month ahead. On the higher end, the price may move towards Rs.4977, while on the lower end, it may find support around Rs.4100 levels.

Energy Monthly

Technical Outlook MCX Natural Gas

On the Weekly chart, MCX Natural Gas has sustained below its “Ichimoku Cloud” which signifies bearish presence in the counter. Also, the price is trading below its Parabolic SAR which indicates negative momentum. Moreover, the price has sustained below its 50*200 EMA which suggests control in the hands of the bears. Furthermore, momentum indicator RSI (14) has breached below the 50 level which confirms power in the hands of the bears. Additionally, a momentum indicator Stochastic (6) has shown a negative crossover which indicates that the price can witness pressure in the near term. So based on the above technical structure, we expect a bearish move in MCX Natural Gas (Jan) Futures for the month ahead. On the higher end, the price may move towards Rs.194, while on the lower end, it may find support around Rs.131.80 levels.

Energy Monthly

Research Team

Mr. Sumeet Bagadia : Executive Director

Sunand Subramaniam : Sr. Research Associate Sachin Gupta : Sr. Research Associate

Bhupendra Kushwaha : Research Associate Ian Gonsalves : Research Associate

Diksha Mhatre : Research Advisor Anup Chaudhary : Research Advisor

Any kind of queries on RESEARCH,

You can contact us on: 022 - 67079933 / 971 / 976

Email : [email protected]

website : www.choiceindia.com Connect

us

Disclaimer

This is solely for information of clients of Choice Broking and does not construe to be an investment advice. It is also not intended as an offer or solicitation for the purchase and sale of any financial instruments. Any action taken by you on

the basis of the information contained herein is your responsibility alone and Choice Broking its subsidiaries or its employees or associates will not be liable in any manner for the consequences of such action taken by you. We have

exercised due diligence in checking the correctness and authenticity of the information contained in this recommendation, but Choice Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any

loss or damage that may arise to any person from any inadvertent error in the information contained in this recommendation or any action taken on basis of this information. Technical analysis studies market psychology, price patterns and

volume levels. It is used to forecast future price and market movements. Technical analysis is complementary to fundamental analysis and news sources. The recommendations issued herewith might be contrary to recommendations issued

by Choice Broking in the company research undertaken as the recommendations stated in this report is derived purely from technical analysis. Choice Broking has based this document on information obtained from sources it believes to be

reliable but which it has not independently verified; Choice Broking makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are

based upon publicly available information at the time of publication and are subject to change without notice. The information and any disclosures provided herein are in summary form and have been prepared for informational purposes.

The recommendations and suggested price levels are intended purely for trading purposes. The recommendations are valid for the day of the report however trading trends and volumes might vary substantially on an intraday basis and the

recommendations may be subject to change. The information and any disclosures provided herein may be considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is strictly prohibited. The

information and any disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current performance may be unaudited. Past performance does not

guarantee future returns. There can be no assurance that investments will achieve any targeted rates of return, and there is no guarantee against the loss of your entire investment.

POTENTIAL CONFLICT OF INTEREST DISCLOSURE (as on date of report) Disclosure of interest statement- • Analyst interest of the stock /Instrument(s):- No. • Firm interest of the stock / Instrument (s):- No.

2020-01-06T12:42:27+0530Sunand Subramaniam