Crude Oil Monthly Update

Thursday| August 8, 2013

Inventories, geopolitical factors to support oil prices

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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Crude Oil Monthly Update

Thursday| August 8, 2013

Geopolitical risks and inventory drawdown supported oil prices higher

Geopolitical eopolitical risks ranging from Egypt, Iran to Libya, created threat of supply disruptions and the decline in US crude oil inventories monitored by the EIA (Energy Information Administration) added fuel to the fire to the rise in oil prices last month. Gains of almost 9 percent were seen during July13 on the Nymex, with prices touching ing a high of $109.32/bbl (Chart 1). Gains in prices on the MCX crude oil contract were at 10.4 percent, with the commodity touching a high of Rs6535/bbl in July13. Increase in domestic prices was more than that in the international markets on the back of Rupee depreciation.
Chart 1: July Crude Oil Performance (%)
11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 Nymex Crude Oil MCX Crude Oil Brent Crude Oil 8.8 10.4

5.4

Prices of Brent crude oil increased around 5.4 percent in July July13 and closed at $107.7/bbl, $107.7/bbl backed by supply concerns and threat of shutdown of the Suez Canal Canal, which supplied around 7 percent of all seaborne traded oil and about 13 percent of liquefied natural gas that is traded worldwide. While oil prices role due to threat of a disruption in oil supply through the Suez Canal, there was no actual impact seen. It is the importance nce of the Suez Canal that kept the markets fearing of a cutback in supplies.
Chart 2: Quarterly Performance of Crude Oil (%)
10.00 8.00 6.00 4.00 2.00 0.00 (2.00) (4.00) (6.00) (8.00) Nymex Crude Oil MCX Crude Oil Q1 2013 (%) Q2 2013 (%) (7.1) Brent Crude Oil (0.7) (1.0) 6.0 5.8 9.4

Chart 3: YTD Crude Oil Performance (%)

27.8 26.5 21.5 16.5 11.5 6.5 1.5 (3.5) Nymex Crude Oil MCX Crude Oil (3.1) Brent Crude Oil 14.5

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Chart 2 shows that the currency factor played a crucial role in the Indian markets, with crude oil prices on the MCX rising 5.8 percent and 9.4 percent during Q12013 and Q2201 Q22013. Gains in the Indian markets have been phenomenal due to depreciation in the Rupee. Nymex oil prices rose during the Q12013, followed with losses of around 0.7 percent during the Q22013. The decline in prices seen during the Q22013 was on the back of weak k market sentiments on the back of global economic concerns. Chart 2 and 3 shows that Brent crude oil prices have seen major decline in prices during the Q22013 and since the start of the year. Factors that led to downside pressure in Brent crude prices du during ring these periods was the strong demand for light sweet crude oil and new pipeline capacity that helped carry oil from storage tanks in Cushing Oklahoma to the Gulf Coast.

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Crude Oil Monthly Update

Thursday| August 8, 2013

Month-on-Month Month Price and Inventory Performance

Month Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Nymex Crude Nymex Crude Oil MCX Crude Oil MCX Crude Oil % Change Oil ($/bbl) (Rs./bbl) % Change 97.49 92.05 97.23 93.22 91.97 96.56 105.03 6.3 (5.6) 5.6 (4.1) (1.3) 5.0 8.8 5202 5076 5305 5014 5273 5806 6409 3.7 (2.4) 4.5 (5.5) 5.2 10.1 10.4 Inventories (Mn bbl) 369.1 377.53 388.6 395.3 391.3 383.8 364.6 Crude Oil Inventories % Change 2.6 2.3 2.9 1.7 (1.0) (1.9) (5.0)

From $97/bbl at the start of the year, oil prices fell to $91/bbl when market sentiments weakened and then a sharp recovery has been seen on the back of threat of supply disruptions coupled with geopolitical tensions. Along with these factors, the decline in in inventories ventories from the month of May13 onwards kept adding further support to oil prices. In the month of April13, oil inventories stood around 395.3 million barrels and from there on inventories slumped to 364.6 million barrels in July13 due to increase in oil refining capacity in the US. On the domestic front, since ince the month of May13, gains in prices on the MCX have been higher than that on the Nymex due to the weaker Rupee. For the shortterm, this factor will continue to support crude oil prices on the MCX.

Oil inventories decline 5 percent in July13

Chart 4: US Crude Oil Inventories (Mn bbl)
400 395 390 385 380 375 370 365 360 355 350

Positive trend in oil prices was supported due to a sharp decline in US crude oil inventories since the month of June13. In the month of July13 alone, oil inventories slumped 5 percent and this factor supported s prices strongly. Over the year, inventories have gained around 1.3 percent and they currently stand around 364.6 million barrels. During the Q12013 inventories increased around 8 percent, while in the Q22013 inventories slipped more than 1 percent. percent Capacity at US refineries has increased significantly in 2013 and this is leading to a drawdown in oil inventories.

Major increase in capacity was seen due to Motiva Enterprises expansion of its Port Arthur, Texas refinery along with the re-start of the he Trainer, Pennsylvania, re refinery, finery, which is owned by Monroe Energy, a subsidiary of Delta Airlines. The Port Arthur refinery has a huge capacity of 600,250 million barrels per day and is currently the largest refinery in the US. Data by the Oil and Gas Journal indicates that it is one of the ten largest refineries worldwide by crude distillation capacity. Refineries in the US are running at their highest levels in six years and are expanding their export terminals. This factor has booted the US energy sector as oil production has touched a 22-year 22 high.

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Crude Oil Monthly Update

Thursday| August 8, 2013

Oil production rises in the US

Crude oil production in the US rose to 7.56 million barrels a day, marking the highest since December 1990. Increase in oil production is seen on the back of the use of fracking that has helped unlock supplies trapped in shale formations in the central parts of the nation. Data by the EIA showed that the 143 operable refineries in the US had a total crude distillation capacity of 17.8 million b/cd, up around 3 percent as compared ompared to a year earlier. Domestic production in the US is expected to surpass crude oil imports in October for the first time since Feb1995. . On the back of increase in output from shale-oil oil fields, output in the US is expected to rise 14 percent this year 7.4 million barrels per day, the highest since 1991. In 2014, further increase of 11.4 percent is expected in 2014 and this will raise the output to 8.24 million barrels per day, which will be the highest since 1987.

Net exports of crude oil climb to a record high

Slowing demand growth in the US due to increased usage of fuel fuel-efficient efficient cars is shifting the refined oil products to other markets and the export of oil products from the US is seen. Net exports of refined petroleum products from the US a are expected to climb to a record of 1.54 million barrels this month. month Domestic demand has dropped to its lowest level in four years and due to this factor US oil companies are focusing on selling gasoline, diesel and other fuels to export markets in Latin America, South America and Europe.

OPEC output decline due to Libya cutback

Crude oil production for the month of June13 in the OPEC declined by 370,000 barrels a day, falling more than 1 percent on the back of supply disruptions in Libya, Nigeria and Iraq. The 12 OPEC members pumped around 30.61 million barrels a day in June13 as compared with 30.98 million barrels in May13. Libyan crude oil production fell by 200,000 barrels a day in June13 to 1.15 million barrels.

Rising oil imports pose concern for Indian economy

Cost of oil imports in India rises substantially due to a weaker Rupee, which in turn leads to concerns over rise in inflation. Currently, the Indian economy is facing a host of economic concerns, with Rupee weakness being at the forefront and with the inc increase rease in oil prices acting as another negative factor.

Saudi Arabia signals production cap

Due to slowing demand, Saudi Arabia has signaled that the country will note increase production as planned before. The country will not increase output capacity to 15 million barrels a day on the back of rise in shale production in the US, thereby reducing import demand. This decision by Saudi Arabia indicates the shift in the oil supply patterns at a global level. With the increase in production in the US, world oil majors are re-thinking thinking on the output plans, thus putting the worlds largest economy further ahead in terms of the impact that it has on the world oil markets.

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Crude Oil Monthly Update

Thursday| August 8, 2013

Inventories, geopolitical factors to support oil prices

With further increase in refining capacity apacity in the US, oil inventories are expected to decline. This factor coupled with the geopolitical tensions linked with Iran, Libya and Egypt will continue to drive oil markets. Any negative news with respect to the oil producing countries could trigger gains in prices. In the Indian markets, the Rupee factor will additionally support upside in prices. The only risk to the downside is the ongoing concerns with respect to the decision by the Federal Reserve towards its QE tapering. With the Fed expected to begin the pullback in the coming months, sharp upside in crude oil prices over the month could be capped.

Technical Levels (1 Month)

Commodity Nymex Crude Oil ($/bbl) MCX Crude Oil (Rs./bbl) Support 2 95 5800 Support 1 101 6180 CMP 105 6428 Resistance 1 108.5 6640 Resistance2 114 7000

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