IMF Reports and Commodity Tips
Crude Oil Commodity In the previous week, one of the major reasons behind 4 percent fall was Saudi Arabia’s cut in its OSP’s i.e. Official Selling Prices by $1 on its main crude, the Arab Light to Asian consumers. Indirectly it offered a discount of around $1.05 against other oil averages of Oman and Dubai crude, which is the lowest discount since December 2008 and clearly makes the case that suppliers are indirectly coming under pressure as demand stay muted while output remains higher across major markets. That was not enough as latest cues suggest Iran is also matching the timing from SA wherein it is planning to offer discount on Iranian Light by 82 cents a barrel as compared to the average of Oman and Dubai. As prices dwindle, discounts and cuts in OSP’s is just another meter which suggests that market is not in a good condition and has a chance to move into further unchartered territories in medium-term. Traders and Inventors should be watching how actually other members of the group like Kuwait and Iraq act over the same, as officially they are supposed to release their prices estimates in the coming week. In other developments, supplies from OPEC as a group continues to be high as the agency likely pumped 30.935 MBPD worth of oil in September, Bloomberg survey of producers and analysts shows. US output on the other hand too continued to extend, the EIA data showed last week. Crude inventories for week ended October 3rd jumped by 5 million barrels, higher than markets forecasts whereas gasoline and distillate stocks too rose, with fall in refinery utilization rate and lower demand putting pressure on product stocks as well. Gasoline inventory advanced 1.18 million barrels while distillate stocks increased 439,000 barrels further affect prices negatively. Refinery utilization in the past week slipped by 0.5 percent, further moving below the 90 percent mark after the good 3.6 percent drop last week. As we have been updating earlier too, US refiners have their seasonal maintenance schedules between September-mid to mid-November which leads to lower churning of oil in the country. Note that better crack spreads in past weeks were favoring the refiners to maintain higher run-rates despite lower local demand as they exported products up to a limited level. However, if we check front month WTI to NYMEX Gasoline and Distillate prices, 3:2:1 Crack spread has been hovering around $12 for last three weeks, providing no incentive major to refiners and thus also one of the reasons behind fall in rates lately. If we look at derivatives side, WTI Nov PVOI suggest fall in prices was coincided with good drop in volumes and OI by 20 percent and 30 percent respectively as per last available data till Friday evening (Bloomberg, IST). Continue fall in prices should have had pushed traders on the sidelines whereas cut in OI depicts slashing down of any kind of earlier long positions, if any and also probably cut in some shortpositions as commodity move into oversold phase. On same lines, Brent Nov PVOI suggest similar structuring though curious thing lies with the fact that next month contract which becomes active next
week has fallen at a higher rate along with increase in OI suggesting further build in bearish positions in Brent Dec. Lower demand factor can also be checked on backwardation which reduced between WTI Nov-Dec to under 75 cents as compared to over $1 in last week. If we add the global economic factors, IMF in its recent report said global growth would stay near 3.3 percent in 2014, down from its April forecasts whereas economic growth in 2015 was now estimated to be 3.8 percent as against expectations of 4 percent in July with further downside potential pressed by weaker EU, Japan and to an extent subdued Chinese expansion. With Dollar too once again seen trading stable to higher and economic developments in China and EU remain subdued, we feel negativity in the commodity would continue. However, looking at the fact that WTI has fallen around 9 percent in last two weeks, there should be good rebound only then we recommend adding fresh shorts. Crude oil Oct MCX futures prices fell sharply in the last week. Prices are trading at oversold zone and expected to see a higher correction before resuming its downtrend. For short term traders we suggest selling at higher levels Crude Oil Weekly Levels Resistance on upside at 5350-5480 Support on downside at 5180-5100 Trend: Down Commodity Tips Sell Crude Oil Mcx Oct on rise at 5320-5340 sl 5480 Tgt 5180-5150