14 Sep 2017

Special Report on
ENERGY
Strategy Crude Oil (Rs.)
Buy above 3200

Stop loss* Below Rs.3000

Target Rs.35003750++

(CRUDE OIL) *Stop loss based on closing basis.

 Crude Oil
Fundamental
Overview
During the month of August crude oil prices ended on negative path and it managed to hover in range
Outlook
of $45-$50.00 in NYMEX and 2935-3234 in MCX. Bobbling activity was seen in oil prices from one hand
fall in crude stocks which supported the prices heavily while, on the other hand lower refinery demand
due to hurricane Harvey capped its upside limit in prices. Libyas rising output is a headache for the
Organization of the Petroleum Exporting Countries (OPEC), which together with non-OPEC producers
including Russia has pledged to hold back around 1.8 million bpd of supplies between January this
year and March 2018 to tighten supplies. However, OPEC has so far fallen short of its pledge, in part
due to Libyas strong output.
Overall: Demand for crude oil is likely to rise in the coming weeks, as refineries are looking to cover-
up the shortfall caused by Hurricanes Harvey and Irma. Oil prices were also lifted with worlds energy
watchdog saying that global oil supplies fell in August for the first time in four months. Global output
was down by 720,000 barrels a day last month from July, to 97.7 million barrels a day.

Baker Hughes data show a decline in the weekly U.S. oil-rig count:
According to Baker Hughes latest report for the week to 8 September 2017, the US drilling rig count
has risen by 1 unit to 944 rigs (80.1% oil and 19.8% gas) w-o-w, while oil rig count declined by 3 units
to 756 rigs while gas rig count increased by 4 units to 187 rigs. The US oil rig count was higher by 436
rigs y-o-y, an increase of 86%, and in terms of oil and gas split, increased by 83% to 756 rigs and 108%
to 187 rigs, respectively. As a result, the US rig count increased by 540 units (+134%) from the bottom
of the rig count on May 2016.

World Oil Demand:

As per OPEC latest monthly report, In 2017, world oil demand growth was revised higher by around
50 tb/d, primarily as a result of betterthan expected performance from OECD America and Europe
in 2Q17. Hence, world oil demand growth is now pegged at 1.42 mb/d, with total global consumption
at 96.77 mb/d. World oil demand growth for 2018 was also revised up by around 70 tb/d from the
previous months report; it is now anticipated to be 1.35 mb/d, with total global consumption of around
98.12 mb/d.

World Oil Demand in 2017 and 2018:

 World Oil Supply in 2017 and 2018:
Fundamental
Preliminary data indicates that world oil supply was down by 0.41 mb/d m-o-m in August to average
96.75 mb/d, higher by 1.66 mb/d, y-o-y. Non-OPEC oil supply in August declined by 0.32 mb/d m-o-m
to average 57.68 mb/d. Non-OPEC supply is projected to grow by 0.78 mb/d y-o-y in 2017, which is
Outlook
unchanged from last months prediction due to the offsetting of the upward revision in the FSU by
the downward revision in OECD Americas, to average 57.80 mb/d. The main changes for the month
is a result of an increase in expected oil production growth in Kazakhstan by 0.04 mb/d in 2017 and
lower growth in the US oil supply by 0.07 mb/d in 2017. The non OPEC oil supply forecast in 2018 was
revised down by 0.10 mb/d due to the downward revisions in Kazakhstan and Russia. Hence, non-
OPEC supply to average 58.80 mb/d with a growth of 1.00 mb/d for 2018 is anticipated. OPEC NGLs
and non-conventional liquids production averaged 6.31 mb/d in 2017, an increase of 0.17 mb/d, y-o-y.
In 2018, production is forecast to grow by 0.18 mb/d to average 6.49 mb/d. In August 2017, OPEC
crud oil production decreased by 79 tb/d, according to secondary sources, to average 32.76 mb/d.

Non-OPEC oil supply highlights in 2017:

Non-OPEC oil supply highlights in 2018

Fundamental OPEC
OPEC raises oil demand growth forecasts for 2017, 2018
OPEC has revised higher its global oil demand growth forecasts for this year and next as consumption
Outlook
in the second quarter of 2017 surpassed expectations. In its monthly oil market report the OPECs
research arm said better-than-expected numbers from industrialised nations in the West and China
has led it to raise its oil demand growth estimate for 2017 to 1.42m b/d. This is an upward revision of
around 50,000 b/d, with total consumption forecast at 96.8m b/d. However, total OPEC-14 crude oil
production averaged 32.76 mb/d in August, a decrease of 79 tb/d over the previous month. Crude oil
output increased in Nigeria, while production showed declines in Libya, Gabon, Venezuela and Iraq.

OPEC Crude oil production:

Balance of supply and demand in 2018

OPEC crude in 2018 was revised up by 0.4 mb/d from the previous month. Within the quarters, the first
quarter was revised up by 0.1 mb/d, while the second, third and fourth quarters were revised up by 0.5
mb/d, 0.6 mb/d and 0.5 mb/d, respectively. OPEC crude is estimated at 32.8 mb/d, which is around 0.2
mb/d higher than the 2017 level. The first quarter is expected to increase by 0.4 mb/d, while the second
and the third quarters are expected to increase by 0.1 mb/d and 0.2 mb/d, respectively. The fourth
quarter is estimated to remain unchanged compared to the same quarter in 2017.
Technical Outlook Technical View Crude Oil
(Symmetrical Triangle-A continuation pattern)
Daily Chart analysis
Daily Chart (cmp 3150)

We have seen a mind blowing rally in crude oil prices in last 2 month. It spurts from 2732 to 3151
almost up by 15.00%.While writing, Crude (Sept) future is trading around 3150. It made a low of 2732
on June 21, 2017 and bounced back sharply. Crude Oil formed a symmetrical triangle pattern(The
pattern is identified by drawing two trend lines that connect a series of sequentially lower peaks and a
series of sequentially higher troughs)on daily chart and having breakout point at 3200.Crude Oil future
has hurdle at 3200 and support at 3000. Two consecutive closes above 3200 will take it to 35003580
and then to 3750++ mark in days to come else could touch its support level of 3000.Fresh selling only
can be seen below 3000. Overall trend looks positive and any sharp fall will be an opportunity to add
on more position in it. On Daily chart, Crude Oil is trading above 21 and 55 days exponential moving
average which is quoted at 3065 & 3052 while MACD and RSI still showing positive diversion which
indicates that upper side seems certain.

Traders dont go for aggressive or positional selling at all because trend is positive and we will expect
rally to remain continue in coming weeks. For positional trade, stop loss seeing at 3000 on closing

basis. It will get positional weak only below 3000 mark which is unlikely to breach in near terms.

Trading Strategy:

BuyCrude Oil above Rs.3200 and can accumulate in panic with stop loss below
Rs.3000 on closing basis for the initial target of Rs.3500 -3750++ mark. (Support will
remain Rs.3000)

*If required you can rollover the position.

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IMV Commodity Research Desk

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Email: research@indianmarketview.com
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