By Navneet Damani
Crude prices ended the week on a negative note, reaching their lowest level in more than a year as surging supply and the spectre of faltering demand scaring off investors kept up pressure. Sellers continue to dominate the markets despite there being no fresh bearish triggers to support prices and change the bearish tone. The Brent-WTI spread widened and closed at $8 reflecting the fact that US inventories and production continue to rise while Brent inventories have been somewhat reduced by sanctions against Iran.
Inventory report
For this week, data from EIA showed a build of 4.9 million barrels in US crude oil inventories against the expectations for a build of 2.5 million barrels, the highest level since December 2017. Crude stocks at the Cushing, Okla and delivery hub for US crude futures fell by 116,000 barrels. Gasoline demand remains strong, and it will only strengthen as we get into the holiday shopping season. Gasoline stocks fell by 1.3 million barrels to 225.32 million barrels, compared with expectations for a 198,000-barrel drop. The level was the lowest since December 2017. In the Midwest, gasoline stocks fell to the lowest since November 2017. Distillate stockpiles, which include diesel and heating oil, fell by 77,000 barrels, against expectations for a 2.8 million-barrel drop. Net US crude imports rose last week by 183,000 bbl/d.
Meanwhile, API showed small reduction in crude of 1.545 million barrels against the expectations for a drawdown of 2.941 million barrels. On the other hand, Baker Hughes reported a 3-rig decrease for oil and gas this week. The total number of active oil and gas drilling rigs now stands at 1,079, with the number of active oil rigs decreasing by 3 to reach 885 and the number of gas rigs holding steady at 194.
OPEC's efforts
OPEC officials have been frequently making public statements that the cartel and its partners would start withholding crude in 2019 to tighten supply and prop up prices. US President Donald Trump may have triggered a steep break when he said he would stick by Saudi Arabia despite the events surrounding the death of Jamal Khashoggi, saying prices would be “through the roof” if the US broke up with its Middle East ally.
It seems like Trump has removed all the bullish sentiment after his recent tweets where he has expressed need for Saudi Arabia to keep prices stable and not go for any output cuts in Vienna meet. The market seems nervous as investors are forecasting that there wont be any major output cut to remove the oversupply of crude in the markets. Meanwhile, Indias crude imports hit a seven-year high in October.
Natural Gas
Natural gas prices ended on a negative note, plunging 3 per cent on Friday after the news of forecasts for more moderate weather that will bring down heating demand. Prices fell on expectations that a record cold snap would moderate. Meanwhile, data from EIA showed a massive drawdown of 134 billion cubic feet of gas from inventories during the extremely frigid week ended November 16, marking the earliest triple-digit withdrawal in November on record. Right now, the market seems to be highly volatile as too many conflicting reports about coming winters weather models and shallow underground working stocks at the end of the refill season is stoking panic in markets.
Conclusion
This week, market players will continue to pay close attention to comments from OPEC to gauge its readiness on cutting output ahead of an important OPEC gathering next month. Right now, sellers continue to dominate the markets and the negative bias is likely to stay until we do not see any bullish news from OPEC to go ahead for output cut. Meanwhile, economic concerns remain, with the global economy still vulnerable to shocks, which have brought unprecedented uncertainty for oil markets.
Meanwhile, the market will focus on the news of any meeting between officials from China and the United States aiming at seeking a solution to the trade tensions.
Crude oil
MCX Crude Oil continued its weakness in the preceding week and is not indicating any signs of trend reversal. Momentum indicators RSI and MACD are still signifying weakness in price. Short covering after a steep fall in the past few sessions cannot be ruled out, but major bias remains weak below Rs 3,725 which act as strong short-term resistance. Supports are at Rs 3,530-3,470 area. Selling on rise is advised.
Natural gas
Profit booking looks possible for MCX Natural Gas in the short term as the counter is facing stiff resistance at Rs 335. Supports are placed at Rs 268-255 area. Selling on rise around Rs 311-318 zone is advised.
(The writer is AVP-Commodity Research, MOFSL)
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