Energy Markets Trading In The Red

Crude oil declined on Tuesday to trade at 95.97 and recovered a bit this morning to trade at 95.85 adding 12 cents. Yesterday crude oil prices declined sharply led by a steep fall in natural gas as growth concerns in emerging markets raise concerns about crude oil demand. Also, crude oil and gasoline inventories are expected to climb this week which is weighing on prices. API inventory is due for release today which is expected to show that crude inventories rose by Crude 2.7 mln. As per a Bloomberg survey, the DoE report may show both gasoline and crude stocks inching higher for the week ended January 24th; though we feel rise in them would be eclipsed by the higher drop in distillate stocks. Bloomberg data show distillate stocks falling by around 2.5 million barrels while we feel there is a chance for a higher than anticipated fall and that should drive prices higher, albeit at a slower pace as seen in the previous week. Compounding this, there could be some positive cues out of the Cushing stocks wherein the start of the oil flow from the TransCanada pipeline is likely to lead to some reduction in stocks. As per last week’s number, stockpiles at Cushing, the delivery point for WTI stood at 41.6 million.

The US Dollar Index (DX) gained around 0.1 percent yesterday due to weak market sentiments that led to rise in demand for the low yielding currency. Also, unfavorable economic data from the country coupled with concerns of QE tapering by the Federal Reserve in its meeting that starts today supported an upside in the DX. The currency touched an intra-day high of 80.65 and closed at 80.61 on Monday. US New Home Sales rose by less than expected 414,000 in December as against a gain of 445,000 in November.

OPEC will be able to handle the extra oil expected to come from Iran, Iraq and Libya, OPEC’s secretary general said on Monday, insisting the group would collectively head off any oversupply. Brent oil continued to ease as worries of a market glut weighed on the commodity. Brent oil declined 10 cents this morning to trade at 106.94. There are many factors weighing on Brent oil but there is not one outstanding controlling factor. These include the relatively mild winter in major Asian consumers such as China and Japan, the coming refinery maintenance season in the second quarter, the possibility of the return of Iranian barrels to the market coupled with rising Iraqi output, and soft demand growth in top importer China. The combination of factors should be enough to ensure prices remain biased toward the downside and that heavier, Middle East grades weaken relative to Brent, the benchmark global light grade.

Natural gas recovered a few points after yesterday’s sharp decline as investors sold off to book profits after gas hit its highest price in years. Gas is trading at 4.759 up by 8 pips but was touching the $5.20 earlier this week. Natural gas prices fell sharply from higher levels partly on profit booking and partly due to normal weather forecasts for the East Coast in early February.