Crude Oil Monthly Update

Crude Oil Monthly Update
Wednesday| September 11, 2013
Inventory impact to be muted, Syria to remain the focus
Angel Commodities Broking Pvt. Ltd.
Reena Rohit Chief Manager Non-Agri Commodities and Currencies reena.rohit@angelbroking.com (022) 3935 8134
Anish Vyas Research Analyst Non-Agri Commodities and Currencies anish.vyas@angelbroking.com (022) 3935 8104
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Geopolitical tensions drive oil prices higher.

Towards the end August13, crude oil prices received major support from developing geopolitical tensions in Syria. Fear was more related to the impact it could have on oil producing countries in the Middle East. While the US was expected to begin military action on Syria, latest developm developments indicate that a diplomatic route of intervention could be arrived upon in order to wear away the risk of any chemical weapon attack. With the Middle East accounting for a whopping 35 percent share of world oil output, the risk element raised oil price prices higher. As far as Syrias connection to crude oil output is concerned, we can easily say that it has hardly any major contribution. Syria only produces less than 50,000 barrels of crude oil per day currently, while global crude oil output stands at 90 m million illion barrels per day, thus making Syria a not so important direct factor to the world oil industry. Data by the International Energy Agency showed that in 2012, Syria produced below 200,000 barrels per day but due to the ongoing crisis, oil production h has as been hit largely. However, the risk of the war spreading in the other parts of Middle East is what had driven oil prices higher. Syria borders Iraq, which is the biggest oil producer after Saudi Arabia in the OPEC. Hence, the threat to supply disruption disruptions is likely to support oil prices higher until any comprehensive intervention taken place.
Inventory impact expected to be muted, Syria to remain the focus

In the last couple of days, news and developments towards action over Syria has become less risky and has thus led to downside in crude oil prices. Despite a decline in inventories monitored by the American Petroleum Institute (API) that was released on 10th Sep13 oil prices declined sharply. Expectations of the US not taking any military action on S Syria suddenly led to pressure on oil prices that were mainly trading higher on the back of expectations of the crisis spreading to other Middle East countries, and thereby affecting oil supply. Hence, in the near-term, term, oil prices are expected to take major cues from developments in Syria and the intervention strategies that the world majors take in order to prevent the crisis from spreading further. But a major support to downside in oil prices will be the expectations of the crisis spreading further to other her oil producing nations will rise. Also, the supply of crude oil could be disrupted if the crisis spreads. Controversies with respect to how and when the intervention should take place are driving world markets, especially crude oil, and this in turn is keeping market sentiments under check. The Syrian crisis is an extremely complex issue and its resolve too is likely to take longer, thereby continuing to act as a supportive factor for further rise in crude oil prices. The chart below shows that in the month of August13, , WTI and Brent crude prices have increased while gains in the Indian markets excessively higher due to Rupee weakness weakness.
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Oil Price Movement in August13

The last ten days of August13 saw major support coming in for crude oil prices, th that at trading higher on the back of geopolitical tensions. Other factors like improving demand signals and a tightening supply supplyside scenario also supported the commodity. Reduction in supply from producers in North and West Africa along with the Middle East a acted cted as a supportive factor amid geopolitical worries. Supplies North Sea crudes were also affected due to summer maintenance activities and availability of some crude grades in the Asia Pacific acific region was also less. Additionally, improvement in the economic scenario of the advanced economies like US, UK, Euro Zone and Japan added as a positive sentimental factor. Upbeat Chinese crude oil consumption figures for the month of July13 raised hopes of further increase in demand for the commodity in the coming months.
Chart 1 : August Crude Oil Performance (%)
18.0 16.0 14.0 12.0 10.0 8.0 6 6.0 4.0 2.0 0.0 Nymex Crude Oil MCX Crude Oil Brent Crude Oil 2 16
Chart 2 : YTD Crude Oil Performance (%)

50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Nymex Crude Oil MCX Crude Oil Brent Crude Oil 3 17 49
Source: Reuters, Angel Research
Chart 1 shows percentage-wise wise movement in crude oil prices during the month of August13. Nymex crude oil prices increased 2 percent, while Brent crude prices jumped 6 percent. In the Indian markets, weakness in the Rupee led to phenomenal gains in prices of crude oil on the MCX that increased a whopping 16 percent and touched a high of Rs Rs7784/bbl. The impact of currency movement is crucial in case of commodities and this s sharp increase in oil prices especially due to the Rupee factor comes as a cause of concern amid a deteriorating domestic economic scenario. The near-month month crude oil futures contract on the MCX opened the month of August13 around levels of Rs6400/bbl. On the 27th August13, oil prices crossed the crucial Rs7000/bbl mark and from there on the rally continued. Post the appreciation in the Rupee since the last week coupled with deteriorating concerns on the action towards Syria, oil prices have reversed course urse and have trended below the Rs7000/bbl mark. Further direction to prices will be dependent upon the developments on the Syrian front and most importantly for Indian prices; the Rupee movement will also play a crucial role. On a year-to-date date basis as well, oil prices on the MCX have increased almost 50 percent, whereas on the Nymex rise in prices despite supportive fundamental factors has been restricted to around 17 percent (Chart 2).
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Month-wise Price and Inventory Analy Analysis

Month Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Nymex Crude Oil ($/bbl) 97 92 97 93 92 97 105 108 Nymex Crude Oil MCX Crude Oil % Change (Rs./bbl) 6.3 (5.6) 5.6 (4.1) (1.3) 5.0 8.8 2.5 5,202 5,076 5,305 5,014 5,273 5,806 6,409 7,230 MCX Crude Oil % Change 3.7 (2.4) 4.5 (5.5) 5.2 10.1 10.4 12.8 Inventories (Mn bbl) 369.1 377.5 388.6 395.3 391.3 383.8 364.6 360.0 Crude Oil Inventories % Change 2.6 2.3 2.9 1.7 (1.0) (1.9) (5.0) (1.3)
During the month of May13, Nymex crude oil prices had touched levels around $91 $91-92/bbl, but from there on prices have increased sharply. The initial rally was supported on the back of sharp fall in crude oil inventories ories at Cushing, Oklahoma during the months of May13, June13 and July13. Increase in refining demand in the US had led to sharp rise in demand for the commodity, thus eventually providing upside support to prices. Fall in inventories during the month of August13 has slowed down as refining demand in the US has come down marginally. While this was a negative factor for prices as it indicates that may be in the coming months, the inventory decline could slow down; but instead prices took cues from ongo ongoing tensions in Syria and received support. Talking about price performance in the Indian markets, it was seen that gains on the MCX were phenomenally higher on the back of Rupee depreciation. If performance of May13 is seen, it is clear that despite a fall all in Nymex crude oil prices by more than 1 percent, prices on the MCX jumped more than 5 percent during the same period period. Similarly, for the months of June13, July13 13 and August13, gains in prices on the MCX were far higher than that on the MCX, owing to o the Rupee weakness.
Oil Inventory decline stabilizes

Chart 3 : US Crude Oil Inventories (Mn bbl)
400 395 390 385 380 375 370 365 360 355 359.9 350 364.2 359.1 360 376.4 391.3 397.6 395.3
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Chart 3 shows the trend of crude oil inventories monitored by the EIA (Energy Information Administration). Between the months of Jan13 to May13, oil inventories had witnessed an increased. But from the month of May13 onwards the declining trend began. From 395.3 million barrels in April13, inventories fell to 360 million barrels at the end of August13. This Thi decline in inventories has been a major supportive fundamental factor that has aided upside in oil prices.

India imports 78.8 percent of its crude oil requirement

Petroleum Minister M Veerappa Moily said that the estimated Indian demand for petrol, dies diesel and LPG in 2013-14 14 is likely to be around 16,335MT, 73,500MT and 16,712MT respectively. He added that, India accounts for 78.8 percent of its crude oil requirement. We feel that given the current circumstances, the oil import bill is expected to become a further cause of concern for the Indian economy. Stocks of PSU oil companies are witnessing sharp downside as oil prices cross the Rs7000/bbl level. Total fuel subsidy cost for the financial year ended March 2013 stood around Rs1.6 trillion ($23.5 billio billion). Chart 4 shows the historical price trend of the Indian crude oil basket.
Chart 4: Historical Indian Crude Oil Basket Price ($/bbl)
149 129 109 89 69 49 29 9
Crude oil consumption in China stabilizes

Crude oil prices rose in the month of August August13 and a major factor contributing to the rise in prices was the stability on demand-side side for crude oil in China China. The country is the worlds second largest importer of crude oil and it saw a rise in import and export for the commodity. Exports increased around 5.1 percent in the month of July13 from earlier ier forecast of 2 percent. Imports mports jumped by 10.9 percent as against expectations of 1 percent during the same period. Increasing demand from China and rise in US crude production has lead to expectations that the country will overtake US as the worlds largest la net oil importer from October13. The country imported around 26.11 million tonnes of crude oil in the last month as against exports of 0.17 million tonnes during the same period.
IEA trims global oil demand for 2013

International Energy Agency (IEA) ) has cut global oil demand forecast by 100,000 barrels per day to 1.1 million barrels per day on account of weak global economic growth. The agency estimated that global oil supply mainly from non-OPEC OPEC countries will increase to 91.85 million barrels a da day y in current year. While on the other hand, during the month of June June13 crude oil production from OPEC slipped to 30.41 million barrels per day as a result of supply disruption from Libya and Iraq. Oil production from Kuwait and Algeria also dropped during the same period. Even a marginal rise in output increase in Saudi Arabia couldnt help from leading to an overall decline in the cartels production.
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Libya Update
Libya plans to increase its crude oil production from September September13 onwards. Libyan oil o Minister Abdulbari Al-Arusi is estimated that the country will pump around 800,000 barrels a day next month, month which is up from 700,000 barrels a day. During the beginning of August, the countrys biggest oil export terminal was shut down own due to strike by terminal workers. Libya lowered oil production to 800,000 barrels a day in July13, , half the level it used to produce a year ago ago. However, during the later part of the month, the country resumed its exports from Brega Brega, one of the four major export oil terminals. terminals The nation is currently pumping around 670,000 barrels a day.
Iraq to cut crude exports in September

Iraq, which is the second-largest largest crude producer in the OPEC after Saudi Arabia is estimated to reduce its daily exports of crude to the lowest level in the last 20 months. The Middle Eastern producer will ship about 1.76 million barrels a day. This is the lowest level since February 2012 2012, when compared with 2.09 2. million a day in that period.
Outlook Oil prices to remain volatile Syria to remain the focus

Trend in crude oil prices is expected to remain volatile as uncertainty towards intervention in the Syrian crisis continues to drive sentiments. While the US was initially planning to pose a military attack on Syria, latest developments indicate a diplomatic intervention approach. However, we expect these developments to take their own course and time and since it involves decision decision-making making by global majors, majo a host of factors could affect the end result. Hence, taking cues from the developments on the Syrian front, the oil prices are likely to remain volatile; with risk to the downside being more apparent as concerns over the crisis spreading to other oil producing countries deteriorates. In the Indian markets, crude oil prices will additionally take cues from movement in the Rupee. Technical Levels (1 Month)
Commodity Nymex Crude Oil ($/bbl) MCX Crude Oil (Rs./bbl)
Support 2 98.2 6300
Support 1 102.8 6600
CMP 107.1 6875
Resistance 1 110.5 7100
Resistance 2 114.5 7350
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Crude Oil Monthly Update - 11th September 13

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Crude Oil Monthly Update - 11th September 13

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Wednesday| September 11, 2013

Inventory impact to be muted, Syria to remain the focus

Angel Commodities Broking Pvt. Ltd.