Crude oil for most active March expiry contract was little changed on a week on week basis as per the NYMEX markets are concerned. Prices fell during the earlier half of the week tracking the weaker than expected manufacturing data in China, wherein the government backed PMI number came at 50.5 for January, just managing to stay above contraction territory. Concerns over demand from EM’s was later appended with the disappointing set of economic cues from US wherein the manufacturing PMI fell to near 51 mark it lowest levels since July, 2013. However, moderately better inventory number and probable anticipation of continuing demand in winter season drove the commodity higher to close little changed for the week.
In the Indian markets though we saw crude prices falling by 1.6 percent to trade near the Rs 6070 per barrel mark for most active February expiry. This week we saw Rupee appreciating by nearly 0.6percent which took some bit of negativism for the commodity while we believe the other part of losses could be an adjustment out of overall movement in Rupee along with WTI and MCX over the last four weeks. In last four weeks, WTI gained by 4.8% whereas MCX Crude advanced 5.5 percent and the Spot Rupee depreciated by 0.6 percent almost completely adjusting the movement.
Coming back to major commodity specific updates last week, the industry backed American Petroleum Institute (API) late Tuesday showed crude stocks rose for the week ended 31st January though stocks at Cushing, i.e. the delivery point for WTI and distillates both fell by around 1.5 million barrels. Later the more important US Department of Energy (DoE) in its separate report said crude inventories same week gained by 440,000 barrels to 358.1 million. Rise in inventory was lower than the average expectations of around 2.5 million barrels meanwhile stocks for distillate which includes heating oil and diesel continued their drop. Distillate inventories slipped by 2.36 million barrels to 113.8 million in the last week whereas the implied demand for the commodity increased by an average 6% to 3.99 million barrels a day over the last four weeks.
DoE also said Cushing stocks falling by 1.55 million barrels to 40.3 million. Crude inventory at Cushing fell especially as the southern leg of Keystone XL pipeline started between Cushing, Oklahoma to the gulf coast. As also updated earlier, the pipeline is predictable headed for deliver 300,000 barrels of crude a day to the Houston area, sooner than ramping up to 520,000 barrels prior to the end of the year.
In other cues regarding the commodity, the intra-commodity spread between the two most traded contracts at the WTI came down on a week on week basis. The backwardation between March and April contract closed at 78 cents last week and has been coming down since then. As per latest update it stands near 40 cents. We saw the backwardation reducing for almost each day of the current week depicting reduction in supply tightness into the commodity. As per a general rule, crude sees two rounds of consumption periods; one between November and first half of December while the second round of winter wave which hangs in and around second half of January to early February produce better demand for the commodity. This year due to the winter being more intense, we are seeing the demand still continuing for the commodity. However there is one segment in the investment community which is already counting on gradual decline in winter wherein the distillate demand will gradually start falling and should lead to drop in WTI prices in coming weeks. Waning demand can also be seen from the movement in the calendar spread between the March and April, while acknowledged beyond
If one looks at the PVO side for the March contract at NYMEX, volumes till evening session Friday (IST) and OI as of latest available number from Bloomberg show volumes fell by near 8.5% on a weekly basis. The OI also came down by 11 percent with the commodity prices were little changed on week on week basis. While looking at the scenario for last few weeks, we feel traders are not willing to hold open positions particularly on the long side; remember crude had a near 3.5 percent run in last four weeks till 31st January, 2014. While a perfect case for selling has not been developed till now, looking at above cues particularly waning winter demand for the commodity in coming weeks, there is a high probability of prices to drop next week. The other economic specific data points from either side of Atlantic are also not at help against any major rally in the commodity. Cumulatively, we recommend a selling into in Crude on pull-backs for the next week
Crude Mcx February as seen in the weekly chart opened above has the week at 6151 levels originally moved lower, but has very good support of 6048 levels. Afterward prices rallied sharply towards 6182 levels and finally closed marginally lower from the previous week closing levels. For the coming week we anticipate Crude prices to find support in the range of 6130 –6110 levels. Trading without fail below 6090 levels would lead towards the strong support at 6049 levels and then finally towards the major support at 5980 levels. Resistance is now pragmatic in the range of 6280-6300 levels. Trading without fail above 6310 levels would lead towards the strong resistance at 6382 levels, and then in conclusion towards the Major resistance at 6440 levels.
Trend: Up
Major Resistance on Upside at 6294-6382
Major Support on Downside at 6127-6049
Natural Gas Mcx February as seen in the weekly chart has opened the above week at 302.80 levels initially moved sharply higher breaking both the resistance levels, but to finish found very good resistance at 359.40 levels. Anon prices fell sharply towards 295.60 levels and finally closed a little bit lower from the previous week closing levels. For the coming week we suppose Natural Gas prices to find support in the range of 285 –283 levels. Trading without fail below 280 levels would lead towards the strong support at 254 levels and then to end with towards the major support at 245 levels. Resistance is now pragmatic in the range of 318-320 levels. Trading without fail above 325 levels would lead towards the strong resistance at 341 levels, and then to conclude towards the Major resistance at 382 levels.
Trend: Down
Major Resistance on Upside at 318-341
Major Support on Downside at 284.50-254
SELL CRUDE OIL MCX FEB BETWEEN 6135-6145 SL 6240 TGT 6000-6950
SELL NATURAL GAS MCX FEB BETWEEN 317-320 SL 342.10 TGT 285