Energy in the Morning

Jun 13 • Market Commentaries • 1001 Views • Comments Off on Energy in the Morning

During early Asian session, oil prices are seen hovering near $83/bbl with fall of more than 0.40 percent from yesterday’s closing. Ahead of OPEC meeting today oil prices have come under pressure with the question of rising, cutting or keeping the production quota by OPEC members. As per the OPEC monthly report, the world market is well supplied though the production fell in May to 31.58 from 31.64 million barrels per day.

On one side, Saudi Arabia, Qatar and UAE would like to raise the output and on the other side, Venezuela, Iraq, Angola and Iran are warning global crude supply excessive. Thus, oil prices may remain volatile during European session, ahead of OPEC meet which result is uncertain.

Government report from American Petroleum Institute, crude oil stocks have also increased by more than 1.5 million barrels in the last week. So, rise in inventory level might continue to weigh on oil prices. However, as per DOE crude oil stocks are likely to decline where petroleum stocks are expected to climb up as refiners are increasing their capacity.

Investors must be cautious ahead of inventory report releasing tonight, which is expected to give a positive indication for prices. From economic front, industrial production of euro-zone is expected to fall in May, which may further pressurize Euro. Thus, oil prices may take negative cues out of it. From US, economic releases in the form of Producer Price index is expected to fall which may paint a slight positive picture of the economic growth. But other data like fall in retail sales and rise in business inventories may keep sentiment weak.


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We may expect oil prices to remain under pressure driven by above factors. In addition to this, Spain down gradation by Fitch on yesterday and prevailing debt crisis from European nation is expected to keep oil under pressure on concern of declining demand from major oil consuming nations.

Until the Greek elections are finalized, the Spanish bailout concluded and the FOMC comments, oil along with the markets will be volatile. Although the overall theme will remain risk aversion.

Currently, gas futures prices are trading below $2.220/mmbtu with loss of more than 1.2 percent in electronic trading. The U.S. Energy Information Administration on yesterday lowered its estimate for domestic natural gas production growth in 2012 for a second straight month but still expects output this year to be up 3.4 per cent from 2011’s record levels. So, in one side lower production estimate may support gas to trade on higher side, where lower demand may limit the gains. As per US Energy department, natural gas storage is likely o increase by 74 BCF, which may add pressure on gas prices. Most importantly, As per National Hurricane Centre, as of now there is no tropical storm formation is seen in North Atlantic region. Normal temperature in consuming region of US, may pressurize gas demand for the day.

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