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Energy Update

Wednesday| May 15, 2013

Content
Crude oil month-wise performance analysis Oil inventories Brent crude oil performance Natural gas price performance Outlook

Overview This months rally in gold prices above the $1900/oz mark is indicative of structural problems and difficulties at the global economic level. Investors flocked to gold as a safe-haven investment, leading it to touch all-time highs almost every-day. The recent (last 2-3 days) decline in gold prices is partly due to profit-booking at higher levels coupled with expectations of further stimulus measures by Federal Reserve Chairman Bern Bernanke at the Jackson Hole Symposium. On the back of these positive expectations, markets are witnessing a bit of stability, and further trend in the global financial markets would be based on the outcome of the decisions taken by the

Vedika Narvekar - Sr. Research Analyst Vedika.narvekar@angelbroking.com (022) 3935 8130

Anish Vyas - Research Analyst anish.vyas@angelbroking.com (022) 3935 8104

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Energy Update
Wednesday| May 15, 2013

Crude oil prices decline as a result of cut in the demand forecast by major agencies
After showing signs of recovery in the month of March, NYMEX Crude oil prices declined around 4.1 percent in April. Fall in the Crude oil prices was on the back of cut in the demand forecast for global crude oil by the Organization of Petroleum Exporting Countries (OPEC) and Paris based agency International Energy Agency (IEA). Further, slice in the global economic growth by the International Monetary Fund (IMF) also exerted downside pressure on the crude oil prices. However, rise in risk appetite in the global market sentiments coupled with weakness in the Dollar Index (DX) cushioned sharp fall in the prices. Crude oil prices touched a low of $85.61/bbl in the last month and closed at $93.22/bbl.
Prices 110 106 105 100 100 95 90 351 85 341 80 335 82 340 330 371 94 88 95 90 87 102 103 385 382 95 377 371 364 364 369 95 88 374 374 363 95 93 92 385 390 390 380 370 360 350

Average Monthly Nymex Crude Oil Prices vs. Inventories

Inventories 400

Average Monthly Nymex Crude Oil Prices ($/bbl)

Avg. Crude Oil Inventories

Source: Reuters, Angel Research

On the domestic bourses, crude prices fell by 5.5 percent. Oil prices touched a monthly low of Rs. 4,664/bbl and closed at Rs.5,014/bbl in the last trading session of the last month. Appreciation in the Indian Rupee added downside pressure on the oil prices on the MCX. As per the International Monetary Fund (IMF) global economic growth is expected to grow at slow pace of 3.3 percent in 2013 from previous estimates of 3.5 percent in January. The agency has also lowered its expectations for next year to 4 percent from 4.1 percent. US economic growth is also forecasted to grow at slower pace of 1.2 percent in 2013 and kept economic growth unchanged at 2.2 percent for 2014. Further, downside in the oil prices was seen as a result of US crude oil output increased by 0.4 percent for the week ending on 12th April as per the EIA report. Gasoline consumption declined to 8.38 million barrels a day during the same period and demand for distillate also dropped by 5.9 percent to 3.63 million barrels a day. Rising trend of the inventories which is at the highest level since 1992, showing that demand for the crude oil is falling. Apart from that, Chinas Gross Domestic Product (GDP) decline to 7.7 percent in Q1 of 2013 which acted as a negative factor for the crude prices. US GDP also grew at slower pace than forecast thereby leading to expectations of fall in demand for the fuel.

Average Monthly Crude Oil MCX Prices (Rs/bbl)


5,400 5,300 5,200 5,156 5,100 5,000 4,900 4,800 4,700 4,600 4,500 4,638 4,883 4,7674,772 4,840 5,042 5,153 5,3665,370 5,230 5,171

5,1455,149 5,073 5,003

Source: Reuters, Angel Research

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However, sharp downside in the prices was prevented on the back of Iran and a group of nations which consisted of US, Britain, France, China, Russia and Germany had failed to reach an interim deal and negotiations ended on 6th April over the nations nuclear programme. This will add more sanctions on Persian Gulf of Nation. Further, statement from the global central bankers to continue with loose monetary policies cushioned sharp fall in prices. Nigeria which is the largest crude oil producer in Africa had unrest in the country, after Nigerias Movement for the Emancipation of the Niger Delta (MEND) the rebel group which killed fifteen security personnel in an attack in

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Energy Update
Wednesday| May 15, 2013 southern oil producing state. MEND made a statement on 3rd April that it will resume attacks in the nation as suspect of their leader Henry Okah was sentenced to 24 years of prison in South Africa on terrorism charges but Okah denied being the leader of the rebel group. Total production from Organization of Petroleum Exporting Countries (OPEC) fell by 140,000 barrels a day to 30.44 million barrels a day in March as a result of lower output from Iraq, Iran, Nigeria, Libya and Algeria. Production in Iraq declined by 150,000 barrels a day to 2.96 million barrels a day on account of bad weather conditions limited the operations at Port of Basra. Further, sanctions on Iran led to fall in consumer imports of crude to 1.1 million barrels a day in March from 1.26 million barrels a day in the month of February.

Cut in the demand forecast for the crude oil by OPEC and IEA
The Organization of Petroleum Exporting Countries (OPEC) has trimmed forecast for its global crude oil consumption to 800,000 barrels a day down 0.9 percent from previous estimate of 840,000 barrels a day in last month. OPEC forecasted global demand for oil at an average of 45.57 million barrels a day in current year which is down by 70,000 barrels from March estimates. The International Energy Agency (IEA) has cut the global oil demand by 45,000 barrels a day or 0.9 percent to 795,000 barrels a day in 2013. It is expected that global crude oil consumption will increase at a slower pace to an average of 90.58 million barrels a day in current year. Demand from the Euro Zone will slip by 340,000 barrels a day to 14.1 million barrels for the year of 2013 as a result of regions debt crisis. US consumption will drop to 18.58 million from 18.61 million in the last year. As per the IEA report, Saudi Arabia which is the worlds largest crude oil exporter increased it exports by 50,000 barrels a day to 9.3 million barrels a day in the month of March.

US Crude Oil inventories at highest level since 1992 in April


As per the US Energy Information Administration (EIA), crude oil inventories rose sharply around 1.7 percent for the month of April. The rise in the inventories is mainly because of excess production by the refineries as a result of new technology. The average crude oil inventories stood at 390.10 million barrels in the month of April and around 378.50 million barrels on a year till date basis for 2013. On a year till date basis, inventories have gained by 9.8 percent.
Crude Oil Inventories (mn barrels)
400
395.3

395
395.5

390 385 380 375 370 365 360


363.1 361.3 360.3 369.1 371.7 372.2 376.4 377.53 384 381.4

388.6

388.9 388.6 387.6

385.9 382.7

Source: Reuters, Angel Research

Brent Crude Oil performance


Brent Crude oil prices moved in tandem with that of Nymex crude oil prices and declined around 7 percent in the month of April. The major reason for fall in the prices was the concerns of Euro Zone debt crisis coupled with decline in the regions economic sentiments. Further, resumption of production in North Sea also exerted downside pressure on the crude oil prices. While on a year till date basis, prices have declined by 7.86 percent till the last month.

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Energy Update
Wednesday| May 15, 2013 Additionally, strength in the DX, cut in the global economic growth along with forecast for decline in global crude oil demand exerted downside pressure on the crude prices. Further, rise in the Saudi Arabias Average Monthly Brent Crude Oil Prices ($/bbl) crude oil production also acted as a negative 125.0 123.70 factor for the crude oil prices. Apart from that, it 120.0 116.67 116.07 114.32 is expected the Euro Zone will contract by 0.1 115.0 113.03 112.32 112.20 111.52 109.54 percent in Q1 of 2013 also acted as negative 110.0 109.53 109.20 109.12 108.66 factor for the oil prices. 103.43
105.0 100.0 95.0 90.0
103.05

However, sharp downside in the prices was restricted on account of upbeat global market sentiments. European Central Bank (ECB) cut the interest rates by 25 bps to 0.5 percent in the month of April which also prevented sharp fall in the crude prices.

96.50

Source: Reuters, Angel Research

Natural Gas prices increased by 8 percent during the last month


Nymex natural gas prices increased around 8 percent in the last month on the back of rise in risk appetite in the global market sentiments which led to expectations of increase in demand for the commodity. Further, expectations of warm weather conditions will lead to rise in demand for fuel as it is used for air conditioning purposes also supported an upside in the gas prices. Average Monthly Nymex Natural Gas Prices vs. On a year to date basis, prices have increased Inventories 4.17 around 29 percent. Additionally, weakness in the DX 3,700 4.00 3.77 also acted as a positive factor for the prices. 3.71
3.51 3.50

However, sharp upside in the prices was capped on account of rise in gas inventories. As per the US Energy Information Administration (EIA), US natural gas inventories have plunged by 49.5 percent on a year to date basis, while in the month of April inventories gained around 5.3 percent exerting downside pressure on the gas prices. The chart above shows that prices increased from a monthly average of $3.77/mmbtu in March to an average of $4.17/mmbtu in April. Natural gas inventories have rose from an average of 1.873 trillion cubic feet in the month of March to an average of 1.722 trillion cubic feet for the month of April. In the Indian markets, prices have gained around 6.0 percent, but sharp upside was restricted on the back of appreciation in the Rupee. The Indian Rupee appreciated around 1.1 percent in April. In the above chart it is seen the average Indian natural gas prices rose from Rs.206/mmbtu in March to an average prices of Rs.227/mmbtu in the month of April.

3.44 3.35 3.31 2.97 2.72 2.54 2.50 2.51 2.30 2.04 2.82 2.91

3,200

3.00

2,700

2.50

2,200

2.00

1,700

Average Monthly Nymex NG Prices ($/mmBtu)

Avg. NG Inventories

Source: Reuters, Angel Research

Average Monthly Natural Gas MCX Prices (Rs/mmBtu)


230 220 210 200 190 180 170 160 150 140 130 120 110 100 125 117 107 140 137 140 164 157 159 188 203 189 182 179 206 227

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Source: Reuters, Angel Research

Energy Update
Wednesday| May 15, 2013

Outlook
In the coming month, we expect crude oil prices to trade lower on the back of cut in the global crude oil demand forecast for 2013 from major agencies like OPEC, EIA and IEA. Further, it is expected OPEC crude prodcution will increase by more than 2 percent in current year will also exert downside pressure on the oil prices. Additionally, rising trend of US crude oil inventories indicates decline in demand for the fuel. However, sharp downside in the prices will be cushioned as a result of weakness in the DX, upbeat global market sentiments along with forecast for favorable economic data from the major global economies. Natural gas prices are expected to trade on a lower note on account of forecast for warm weather conditions which will lead to fall in demand. Further, rise in the US natural gas inventories will also add downside pressure in the gas prices.

Technical Levels
Commodity Nymex Crude Oil ($/bbl) MCX Crude Oil (Rs./bbl) Nymex Natural Gas ($/mmbtu) MCX Natural Gas (Rs./bbl) Contract June June June May Trend Sideways Down Down Down S2 88.75 4875 3.110 170.00 S1 92.10 5060 3.570 195.00 LTP 95.15 5226 3.926 214.50 R1 98.30 5400 4.360 238.00 R2 101.50 5575 4.760 260.00

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